SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, | Commission File Number: 1-5415 |
A. M. CASTLE & CO.
Maryland | 36-0879160 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
3400 North Wolf Road, Franklin Park, Illinois | 60131 | |||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code(847) 455-7111 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on
which registeredCommon Stock -— $0.01 par value American and Chicago Stock Exchanges
Securities registered pursuant to Section 12(g) of the Act:None
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]þ No [ ]o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X] þ.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yesþ Noo
The approximate aggregate market value of the registrant’s common stock held by non-affiliates of the registrant on February 24, 2004March 4, 2005 was $75,173,938.$127,869,186.
The number of shares outstanding of the registrant’s common stock on February 24, 2004March 4, 2005 was 15,796,439
15,881,046 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Incorporated by Reference | ||||||
Applicable Part of Form 10-K | ||||||
Proxy Statement in connection with registrant’s Annual Meeting of Stockholders | Part III |
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ITEM 1 —Business
A. M. Castle & Co. is a specialty metals and plastics distribution company serving the North American market. The registrant (Company) provides a broad range of product inventories as well as preprocessingprocessing services to a wide varietyarray of customers.
The Company distributes and performs first stage processing on both metals and plastics. Although the distribution processes are similar, different markets are served with different products and, therefore these businesses are considered segments according to Statement on Financial Accounting Standards (SFAS) No. 131 “Disclosures about Segments of an Enterprise and Related Information”. In 20032004 the plasticsPlastics segment accounted for overapproximately 12 percent of the Company’s revenue and therefore is disclosed as a separate segment.revenue. In the last three years, the percentagepercentages of total sales of the two segments were approximately as follows:
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||
Metals | 88 | % | 89 | % | 91 | % | 88 | % | 88 | % | 89 | % | ||||||||||||
Plastics | 12 | % | 11 | % | 9 | % | 12 | % | 12 | % | 11 | % | ||||||||||||
100 | % | 100 | % | 100 | % | |||||||||||||||||||
100 | % | 100 | % | 100 | % | |||||||||||||||||||
Within the Metals segment, inventory takes many forms including round, hexagon, square and flat bars; plates; tubing; and sheet and coil. Metal products include carbon, alloy and stainless steels; nickel alloys; and aluminum.
Depending on the size of the facility and the nature of the markets it serves, the Metals segment service centers are equipped as needed with Bar Saws, Plate Saws, Oxygen and Plasma Arc Flame Cutting Machinery, Water-Jet Cutting, Stress Relieving and Annealing Furnaces, Surface Grinding Equipment and Sheet Shears and Coil ProcessingShearing Equipment. This segment also performs specialized fabrications for customers through pre-qualified subcontractors.
The Company’s market strategies focus on the more highly engineered grades and alloys of metals, supported by a strong service commitment to meeting the needs of users of those metals.
The Company has its main office, and largest metals distribution center, in Franklin Park, Illinois. This center serves metropolitan Chicago and, approximately, a nine-state area. In addition, there are distribution centers in various other cities (see Item 2). The Chicago, Los Angeles and Cleveland distribution centers together account for approximately 40%36% of all core metal sales.
In North America, the Company serves a wide range of industrial companies within the producer durable equipment sector of the economy from locations throughout the United States, Canada and Mexico. Its customer base includes many Fortune 500 companies as well as thousands of medium and smaller sized firms spread across the entire spectrum of metals usingmetal use industries. The Company’s customer base is well diversified across differing industries with no single industrycustomer accounting for more than 5%3% of the Company’s total business and no one customer more than 4%.sales. The Company’s coast-to-coast network of metals service centers provides next day delivery to most of the markets it serves, and two-day delivery to virtually all of the rest. Listed below are the operating subsidiaries and divisions included in the Company’s Metals segment, along with a brief summary of their business activities.
Keystone Tube Company, LLC is a distributor of tubular products serving Midwest customers directly from its Chicago area facility. Oliver Steel Plate Company processes and distributes heavy steel plate from its Cleveland area plant. The Company’s value-added bar processing center, H-A Industries, thermally processes, turns and straightens alloy and carbon bar.
TheOn January 1, 2004 the Company has apurchased the remaining 50% interest in Castle de Mexico, S.A. de C.V., a from its joint venture whichpartner. Castle de Mexico, S.A. de C.V. targets a wide range of businesses within the producer durable goods sector.sector, primarily serving the northern Mexico market. As a wholly owned entity, the operations and reported results of Castle de Mexico, S.A. de C.V. are included in the Company’s Metals segment reporting beginning in 2004.
In 1998, the Company formed Metal Express, a small order distribution company in which it previously had a 60% interest. On May 1, 2002 the Company purchased the remaining interest in Metal Express from its joint venture partner. The Company also holds a one-half50% joint venture interest in Kreher Steel Co., a Midwest distributor, focusing on customers whose primary need is for immediate, reliable delivery of large quantities of alloy, SBQ and stainless bars. In 1998, Castle formed Metal Express, a small order distribution company in which it had a 60% interest. On May 1, 2002 the Company purchased the remaining interest in Metal Express from its joint venture partner.
2
The Plastics segment includes Total Plastics, Inc. (TPI) headquartered in Michigan which includesup until 2004, included two majority owned joint ventures, Advanced Fabricating Technology and Paramont
2
Machine Company. Paramont became a wholly owned subsidiary of TPI during 2004 through the purchase of the remaining joint venture partner’s interest. TPI has locations throughout the Midwest and EastU.S. (see Item 2) where it services a wide variety of users of industrial plastics.
In general, the Company purchases metals and plastics from many producers. Satisfactory alternative sources are available for all metals and plastics that the Company buys and its business would not be materially adversely affected by the loss of any one supplier. Purchases are made in large lots and held in the distribution centers until sold, usually in smaller quantities.quantities and many times with some processing value added services performed. The Company’s ability to provide quick delivery, frequently overnight, of a wide variety of metal and plastic products and processing capabilities allows customers to reduce their inventory investment because they do notby reducing their need to order the large quantities required by producing mills.mills or perform additional material processing services.
Approximately 82%86% of 20032004 net sales wereincluded materials shipped from materials owned by the Company.Company stock. The materials required to fill the balance of such sales were obtained from other sources, such as direct mill shipments to customers or purchases from other distributors. SalesThousands of customers from a wide array of industries are serviced primarily through the Company’s own sales organization and are made to many thousands of customers in a wide variety of industries.organization. Deliveries are made principally by leased trucks. Common carrier delivery is used in areas not serviced directly by the Company’s fleet.
The Company encounters strong competition both from other metals and plastics distributors and from large distribution organizations, some of which have substantially greater resources.
At December 31, 20032004 the Company had 1,4091,533 full-time employees in its operations throughout the United States, Canada and Canada.Mexico. Of these 278287 are represented by collective bargaining units, principally the United Steelworkers of America.
The Company makes available free of charge on or through its Web site at www.amcastle.com the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.
ITEM 2 —Properties
The Company’s principal executive offices are at its Franklin Park plant near Chicago, Illinois. All properties and equipment are well maintained and in good operating condition and sufficient for the current level of activities. Distribution centers and sales offices are maintained at each of the following locations, all of which are owned, except as indicated:
Approximate | Approximate | ||||||||
Floor Area in | Floor Area in | ||||||||
Locations | Square Feet | Square Feet | |||||||
Castle Metals | |||||||||
Charlotte, North Carolina | 116,500 | 116,500 | |||||||
Chicago area - Franklin Park, Illinois | 522,600 | 522,600 | |||||||
Cleveland area - Bedford Heights, Ohio | 374,400 | 374,400 | |||||||
Dallas, Texas | 78,000 | 78,000 | |||||||
Edmonton, Alberta | 38,300 | (1) | 38,300 | (1) | |||||
Fairfield, Ohio | 186,000 | (1) | 186,000 | (1) | |||||
Houston, Texas | 109,100 | 109,100 | |||||||
Kansas City, Missouri | 118,000 | (1) | 118,000 | (1) | |||||
Kent, Washington | 37,700 | (1) | 31,100 | (1) | |||||
Los Angeles area - Paramount, California | 155,500 | (1) | 155,500 | (1) | |||||
Montreal, Quebec | 26,100 | (1) | 26,100 | (1) | |||||
Minneapolis, Minnesota | 65,000 | 65,200 | |||||||
Philadelphia, Pennsylvania | 71,600 | 71,600 | |||||||
Stockton, California | 60,000 | (1) | 60,000 | (1) | |||||
Mississauga, Ontario | 60,000 | (1) | 60,000 | (1) |
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Approximate | Approximate | |||||||
Floor Area in | Floor Area in | |||||||
Locations | Square Feet | Square Feet | ||||||
Wichita, Kansas | 58,800 | (1) | 58,800 | (1) | ||||
Winnipeg, Manitoba | 50,000 | 50,000 | ||||||
Worcester, Massachusetts | 56,000 | 56,000 | ||||||
Sales Offices (Leased) | ||||||||
Atlanta, Georgia | ||||||||
Cincinnati, Ohio | ||||||||
Milwaukee, Wisconsin | ||||||||
Phoenix, Arizona | ||||||||
Tulsa, Oklahoma | ||||||||
Castle de Mexico | ||||||||
Monterrey, Mexico | 55,000 | (1) | ||||||
H-A Industries | ||||||||
Hammond, Indiana | 243,000 | (1) | 243,000 | (1) | ||||
Keystone Tube Company LLC | ||||||||
Riverdale, Illinois | 115,000 | (1) | 115,000 | (1) | ||||
KSI, LLC | ||||||||
La Porte, Indiana | 90,000 | |||||||
Oliver Steel Plate Company | ||||||||
Twinsburg, Ohio | 120,000 | (1) | 120,000 | (1) | ||||
Metal Express, LLC | ||||||||
Waukesha, Wisconsin | 14,000 | (1) | 14,000 | (1) | ||||
Other Locations (19) | 100,400 | (1) | ||||||
Other Locations (14) | 77,000 | (1) | ||||||
Total Metals Segment | 2,866,000 | 2,801,200 | ||||||
Total Plastics, Inc. | ||||||||
Baltimore, Maryland | 24,000 | (1) | 24,000 | (1) | ||||
Cleveland, Ohio | 8,500 | (1) | 8,600 | (1) | ||||
Detroit, Michigan | 22,000 | (1) | 22,000 | (1) | ||||
Elk Grove Village, Illinois | 14,400 | (1) | 24,000 | (1) | ||||
Fort Wayne, Indiana | 9,600 | (1) | 9,600 | (1) | ||||
Grand Rapids, Michigan | 42,500 | 42,500 | ||||||
Harrisburg, Pennsylvania | 13,900 | (1) | 13,900 | (1) | ||||
Indianapolis, Indiana | 27,500 | (1) | 9,000 | (1) | ||||
Kalamazoo, Michigan | 81,000 | (1) | 81,000 | (1) | ||||
Mt. Vernon, New York | 17,700 | (1) | 17,700 | (1) | ||||
New Philadelphia, Ohio | 10,700 | (1) | 10,700 | (1) | ||||
Pittsburgh, Pennsylvania | 12,500 | (1) | 8,500 | (1) | ||||
Rockford, Michigan | 53,600 | (1) | 53,600 | (1) | ||||
Tampa, Florida | 17,700 | (1) | 17,700 | (1) | ||||
Trenton, New Jersey | 6,000 | (1) | ||||||
Total Plastics Segment | 355,600 | 348,800 | ||||||
GRAND TOTAL | 3,221,600 | 3,150,000 | ||||||
(1) | Leased: See Note 3 in the Consolidated Notes to Financial Statements for information regarding lease agreements. |
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ITEM 3 —Legal Proceedings
There are no material legal proceedings other than the ordinary routine litigation incidental to the business of the Company.
ITEM 4 —Submission of Matters to a Vote of Security Holders
No items were submitted to vote of security holders during the fourth quarter of fiscal 2003.2004.
_________________________________________________________________________________________________________________________________________
PART II
ITEM 5 —Market for the Registrant’s Common Equity, |
A. M. Castle & Co.’s Common Stock trades on the American and Chicago Stock Exchanges under the ticker symbol “CAS”. As of February 24, 2004March 4, 2005 there were approximately 1,3881,412 shareholders of record and an estimated 1,7581,812 beneficial shareholders. The Company has paid no dividends in the past two years.
The following table sets forth for the periods indicated the range of the high and low stock price:
—STOCK PRICE RANGE— | ||||||||||||||||||||||||||||||||||||
2004 | 2003 | |||||||||||||||||||||||||||||||||||
—STOCK PRICE RANGE— | Low | High | Low | High | ||||||||||||||||||||||||||||||||
2003 | 2002 | |||||||||||||||||||||||||||||||||||
First Quarter | $ | 3.95 | $ | 5.19 | $ | 8.20 | $ | 11.19 | $ | 6.63 | $ | 9.21 | $ | 3.95 | $ | 5.19 | ||||||||||||||||||||
Second Quarter | $ | 4.39 | $ | 6.55 | $ | 8.95 | $ | 12.48 | $ | 7.35 | $ | 11.00 | $ | 4.39 | $ | 6.55 | ||||||||||||||||||||
Third Quarter | $ | 4.39 | $ | 6.80 | $ | 6.56 | $ | 12.41 | $ | 8.60 | $ | 11.81 | $ | 4.39 | $ | 6.80 | ||||||||||||||||||||
Fourth Quarter | $ | 4.40 | $ | 7.45 | $ | 4.45 | $ | 7.25 | $ | 10.25 | $ | 13.90 | $ | 4.40 | $ | 7.45 | ||||||||||||||||||||
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ITEM 6 —Selected Financial Data
(dollars in millions, except share data) | 2003 | 2002 | 2001 | 2000 | 1999 | 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||||||||||||||||
Net sales | $ | 543.0 | $ | 538.1 | $ | 593.3 | $ | 725.5 | $ | 691.0 | $ | 761.0 | $ | 543.0 | $ | 538.1 | $ | 593.3 | $ | 725.5 | ||||||||||||||||||||
Cost of material sold | (384.4 | ) | (378.0 | ) | (417.1 | ) | (508.6 | ) | (470.5 | ) | (543.4 | ) | (384.4 | ) | (378.0 | ) | (417.1 | ) | (508.6 | ) | ||||||||||||||||||||
Special charges | (1.6 | ) | — | — | (2.0 | ) | — | — | (1.6 | ) | — | — | (2.0 | ) | ||||||||||||||||||||||||||
Gross material margin | 157.0 | 160.1 | 176.2 | 214.9 | 220.5 | 217.6 | 157.0 | 160.1 | 176.2 | 214.9 | ||||||||||||||||||||||||||||||
Plant and delivery expense | (87.1 | ) | (87.9 | ) | (97.5 | ) | (113.5 | ) | (102.3 | ) | (95.2 | ) | (87.1 | ) | (87.9 | ) | (97.5 | ) | (113.5 | ) | ||||||||||||||||||||
Sales, general and administrative expense | (68.3 | ) | (67.7 | ) | (66.8 | ) | (77.3 | ) | (83.1 | ) | (80.0 | ) | (68.3 | ) | (67.7 | ) | (66.8 | ) | (77.3 | ) | ||||||||||||||||||||
Depreciation and amortization expense | (8.8 | ) | (8.8 | ) | (8.9 | ) | (9.0 | ) | (9.2 | ) | ||||||||||||||||||||||||||||||
Impairment and other operating expenses | (8.8 | ) | — | — | (6.5 | ) | — | — | (6.5 | ) | — | — | (6.5 | ) | ||||||||||||||||||||||||||
Depreciation and amortization expense | (6.5 | ) | (8.9 | ) | (9.0 | ) | (9.2 | ) | (9.4 | ) | ||||||||||||||||||||||||||||||
Total other operating expense | (170.7 | ) | (164.5 | ) | (173.3 | ) | (206.5 | ) | (194.8 | ) | (184.0 | ) | (170.7 | ) | (164.5 | ) | (173.3 | ) | (206.5 | ) | ||||||||||||||||||||
Operating (loss) income | (13.7 | ) | (4.4 | ) | 2.9 | 8.4 | 25.7 | |||||||||||||||||||||||||||||||||
Equity in earnings (loss) of joint ventures | 0.1 | 0.5 | (0.6 | ) | (0.3 | ) | (0.5 | ) | ||||||||||||||||||||||||||||||||
Impairment to joint venture investment and advances | (3.5 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||
Operating income (loss) | 33.6 | (13.7 | ) | (4.4 | ) | 2.9 | 8.4 | |||||||||||||||||||||||||||||||||
Interest expense, net | (9.7 | ) | (7.5 | ) | (9.4 | ) | (10.0 | ) | (10.4 | ) | (9.0 | ) | (9.7 | ) | (7.5 | ) | (9.4 | ) | (10.0 | ) | ||||||||||||||||||||
Discount on sale of accounts receivable | (1.1 | ) | (3.4 | ) | (1.3 | ) | — | — | (1.0 | ) | (1.1 | ) | (3.4 | ) | (1.3 | ) | — | |||||||||||||||||||||||
(Loss) income from continuing operations before income taxes | (27.9 | ) | (14.8 | ) | (8.4 | ) | (1.9 | ) | 14.8 | |||||||||||||||||||||||||||||||
Income (loss) from continuing operations before income taxes and equity in unconsolidated subsidiaries | 23.6 | (24.5 | ) | (15.3 | ) | (7.8 | ) | (1.6 | ) | |||||||||||||||||||||||||||||||
Income taxes | (10.1 | ) | (5.5 | ) | (3.0 | ) | (0.6 | ) | 6.0 | 9.9 | (8.7 | ) | (5.7 | ) | (2.8 | ) | (0.5 | ) | ||||||||||||||||||||||
Net (loss) income from continuing operations | (17.8 | ) | (9.3 | ) | (5.4 | ) | (1.3 | ) | 8.8 | |||||||||||||||||||||||||||||||
Net income (loss) before equity in unconsolidated subsidiaries and before discontinued operations | 13.7 | (15.8 | ) | (9.6 | ) | (5.0 | ) | (1.1 | ) | |||||||||||||||||||||||||||||||
Equity in earnings (loss) of joint ventures, net of tax | 3.2 | 0.1 | 0.3 | (0.4 | ) | (0.2 | ) | |||||||||||||||||||||||||||||||||
Impairment to joint venture investment and advances net of tax | — | (2.1 | ) | — | — | — | ||||||||||||||||||||||||||||||||||
Net income (loss) before discontinued operations | 16.9 | (17.8 | ) | (9.3 | ) | (5.4 | ) | (1.3 | ) | |||||||||||||||||||||||||||||||
Discontinued operations | (0.2 | ) | (0.8 | ) | 0.3 | (0.4 | ) | (0.1 | ) | — | (0.2 | ) | (0.8 | ) | 0.3 | (0.4 | ) | |||||||||||||||||||||||
Net (loss) income | (18.0 | ) | (10.1 | ) | (5.1 | ) | (1.7 | ) | 8.7 | |||||||||||||||||||||||||||||||
Net income (loss) | 16.9 | (18.0 | ) | (10.1 | ) | (5.1 | ) | (1.7 | ) | |||||||||||||||||||||||||||||||
Preferred dividends | (1.0 | ) | (0.1 | ) | — | — | — | (1.0 | ) | (1.0 | ) | (0.1 | ) | — | — | |||||||||||||||||||||||||
Net (loss) income applicable to common stock | (19.0 | ) | (10.2 | ) | (5.1 | ) | (1.7 | ) | 8.7 | |||||||||||||||||||||||||||||||
Net income (loss) applicable to common stock | $ | 15.9 | $ | (19.0 | ) | $ | (10.2 | ) | $ | (5.1 | ) | $ | (1.7 | ) | ||||||||||||||||||||||||||
Average shares outstanding at year-end (in thousands) | 15,780 | 14,916 | 14,094 | 14,054 | 14,046 | 15,795 | 15,780 | 14,916 | 14,094 | 14,054 | ||||||||||||||||||||||||||||||
Net (loss) income per share from continuing operations | $ | (1.19 | ) | $ | (0.63 | ) | $ | (0.38 | ) | $ | (0.10 | ) | $ | 0.63 | ||||||||||||||||||||||||||
Net (loss) income per share from discontinued operations | $ | (0.01 | ) | $ | (0.05 | ) | $ | 0.02 | $ | (0.02 | ) | $ | (0.01 | ) | ||||||||||||||||||||||||||
Net (loss) income per share from continuing and discontinued operations | $ | (1.20 | ) | $ | (0.68 | ) | $ | (0.36 | ) | $ | (0.12 | ) | $ | 0.62 | ||||||||||||||||||||||||||
Net income (loss) per share from continuing operations | $ | 1.01 | $ | (1.19 | ) | $ | (0.63 | ) | $ | (0.38 | ) | $ | (0.10 | ) | ||||||||||||||||||||||||||
Net income (loss) per share from discontinued operations | — | $ | (0.01 | ) | $ | (0.05 | ) | $ | 0.02 | $ | (0.02 | ) | ||||||||||||||||||||||||||||
Net income (loss) per share from continuing and discontinued operations | $ | 1.01 | $ | (1.20 | ) | $ | (0.68 | ) | $ | (0.36 | ) | $ | (0.12 | ) | ||||||||||||||||||||||||||
Cash dividends per share | — | — | $ | 0.495 | $ | 0.78 | $ | 0.78 | — | — | — | $ | 0.50 | $ | 0.78 | |||||||||||||||||||||||||
Book value per share | $ | 7.20 | $ | 8.78 | $ | 8.32 | $ | 9.20 | $ | 10.10 | $ | 8.25 | $ | 7.20 | $ | 8.78 | $ | 8.32 | $ | 9.20 | ||||||||||||||||||||
Total assets | $ | 338.9 | $ | 352.6 | $ | 327.4 | $ | 418.9 | $ | 413.3 | $ | 383.0 | $ | 338.9 | $ | 352.6 | $ | 327.4 | $ | 418.9 | ||||||||||||||||||||
Total debt | $ | 108.3 | $ | 112.3 | $ | 119.9 | $ | 164.6 | $ | 126.5 | $ | 101.4 | $ | 108.3 | $ | 112.3 | $ | 119.9 | $ | 164.6 | ||||||||||||||||||||
Stockholders’ equity | $ | 113.7 | $ | 130.9 | $ | 117.2 | $ | 129.2 | $ | 141.8 | $ | 130.2 | $ | 113.7 | $ | 130.9 | $ | 117.2 | $ | 129.2 | ||||||||||||||||||||
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ITEM 7 —Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Financial Review
This discussion should be read in conjunction with the information contained in the Consolidated Financial Statements and Notes.
Executive Overview
Recent History and Trends
A. M. Castle & Co.’s (the “Company”) operating results in 2004 reflect a solid recovery in the manufacturing sector of the U.S. economy from both a volume and material price standpoint. The Company’s Metals segment showed the most dramatic year-over-year changes in market dynamics. Total metal tons sold increased nearly 12% versus last year and material prices rose 21% on average compared to the corresponding 2003 twelve-month period. Metal material price acceleration was in the high single digits during the first quarter of 2004. During the second quarter, prices continued to accelerate while demand across a wide cross-section of our end-use customer markets remained very strong. By year-end, metal material prices were approximately 40% higher than the end of 2003. Solid recoveries in both domestic and global markets have increased the demand for steel, leading to shortages in raw materials such as scrap, iron ore and coke. These supply constraints served to fuel the acceleration of metal prices throughout 2004.
The Company’s Plastics segment also enjoyed double-digit real growth. In contrast to the steep price increases in steel, plastic material prices rose at a more moderate rate and largely did not take effect until the latter half of 2004. Management estimates the plastics price increase to be approximately 3% for the year. Most of the sales growth reported in the plastics segment was due to the planned geographic expansion of the segment into the Southeast portion of the U.S., which the Company embarked upon in 2003.
The favorable market conditions of 2004 were in direct contrast to those the Company experienced in recent years. Results from 2001 through most of 2003 reflect the impact of a prolonged downturn in the durable goods manufacturing sector of the economy that began in the second half of 2000. Evidence of the market depression, along with the 2004 recovery, can be found in a review of the history of the Purchaser’s Managers Index (“PMI”) provided by the Institute of Supply Managers(see Table 1 directly below). Generally speaking, an index above 50.0 indicates growth in the manufacturing sector of the U.S. economy. The following table shows what the average PMI has been for each quarter during those years.
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Table 1
YEAR | Qtr 1 | Qtr 2 | Qtr 3 | Qtr 4 | Qtr 1 | Qtr 2 | Qtr 3 | Qtr 4 | ||||||||||||||||||||||||
2000 | 55.8 | 53.1 | 50.7 | 47.0 | 55.8 | 53.1 | 50.7 | 47.0 | ||||||||||||||||||||||||
2001 | 41.7 | 43.0 | 46.7 | 44.2 | 41.7 | 43.0 | 46.7 | 44.2 | ||||||||||||||||||||||||
2002 | 52.4 | 55.0 | 51.1 | 50.9 | 52.4 | 55.0 | 51.1 | 50.9 | ||||||||||||||||||||||||
2003 | 49.7 | 48.9 | 54.1 | 60.6 | 49.7 | 48.9 | 54.1 | 60.6 | ||||||||||||||||||||||||
2004 | 62.5 | 62.1 | 59.8 | 57.5 | ||||||||||||||||||||||||||||
The index shows declining activity to flat growth in the manufacturing sector of the economy since the third quarter of 2000, that generally continued until the final quarter of 2003. In early 2002, the index rose above 50.0 indicatingindicated some growth however,but it was not sustained. In contrast, the index for every quarter of 2004 was greater than 50.0 reflecting growth.
Management Initiatives
Key to the Company’s operating success in 2004 was management’s restructuring of the Company’s cost base during the 2002 through 2003 economic downturn. Reacting to this prolongedthe lengthy market downturn induring the markets the Company serves,past few years, management implemented a series of initiatives in its metalsMetals segment to increase operating margins and improve asset management. As a result, over time, the Company lowered its consolidated breakeven sales level by reducing operating expense in its metalsMetals segment while increasing worker productivity. To illustrate worker productivity, Table 2 shows a comparison of lines sold per employee for the years 2000 through 2003. “Lines” as used in this context represent a single grade and size item on a customer invoice, which is a common workflow-related volume measurement at Castle. Management frequently reviews lines sold against its total employee base, including executive management, sales and support personnel, as an internal measurement of productivity.
Table 2
2000 | 2001 | 2002 | 2003 | |||||||||||||
Lines per Employee | 478 | 518 | 547 | 577 | ||||||||||||
Cumulative % Improvement | 8.4 | % | 14.4 | % | 20.7 | % |
Throughout 2001, 2002 and 2003, the Company aggressively pursued permanent cost saving initiatives, which included exiting non-strategic and/or non-performing business’s units and flattening its overall organization, eliminating areas of redundant effort and related costs. The combination of volume reductions, productivity improvements and cost savings reduced quarterly operating expenses as shown in Table 32 (dollars in millions).
7
Table 32
Year | Qtr 1 | Qtr 2 | Qtr 3 | Qtr 4 | Total | |||||||||||||||||||
Operating Expense as Reported | 2000 | $ | 49.6 | $ | 50.4 | $ | 48.8 | $ | 57.7 | $ | 206.5 | |||||||||||||
Less: Impairment Charges | — | — | — | (6.5 | ) | (6.5 | ) | |||||||||||||||||
Adjusted Operating Expense | 49.6 | 50.4 | 48.8 | 51.2 | 200.0 | |||||||||||||||||||
Operating Expense as Reported | 2001 | 50.0 | 43.7 | 41.0 | 38.4 | 173.3 | ||||||||||||||||||
Operating Expense as Reported | 2002 | 39.6 | 42.0 | 42.4 | 40.5 | 164.5 | ||||||||||||||||||
Operating Expense as Reported | 2003 | 42.7 | 48.1 | 40.1 | 39.8 | 170.7 | ||||||||||||||||||
Less: Impairment Charges | — | (5.9 | ) | — | (0.6 | ) | (6.5 | ) | ||||||||||||||||
Adjusted Operating Expense | $ | 42.7 | $ | 42.2 | $ | 40.1 | $ | 39.2 | $ | 164.2 | ||||||||||||||
The full annual impact of the savings resulting from the cost reduction actions taken in the middle to latter half of 2003 are expected to materializewere fully realized in 2004. Table 3 compares 2004 and 2003 operating expense as a percent of sales by quarter.
7
Operating Expense(% of Sales) | Year | Qtr 1 | Qtr 2 | Qtr 3 | Qtr 4 | Total | ||||||||||||||||
2003* | 30.1 | 31.5 | 29.7 | 29.6 | 30.3 | |||||||||||||||||
2004* | 25.8 | 23.9 | 23.2 | 24.0 | 24.2 | |||||||||||||||||
*Excludes 2003 impairment charges | ||||||||||||||||||||||
Additionally, in the last three years,To further illustrate, incremental operating expense for the Company aggressively loweredof $13.2 million was 6.1% of the $218.0 million year-over-year sales increase. The Company was well poised to leverage its investment inearnings potential during the 2004 economic recovery.
Since 2000, the Company has also improved its inventory turnover and purposely sold unused facility space in select operations.operations as part of its 2003 restructuring initiatives. The cash generated from these actions, along with the previously mentioned sale of certain non-performing business units in 2003 and strong operating results in 2004, allowed the Company to reduce its total debt and other financing arrangements (including its accounts receivable securitization facility) by $43.3$46.7 million sincethrough the end of 20002004 as illustrated in Table 4 (dollars in millions).
Table 4
December 31, | 2000 | 2001 | 2002 | 2003 | 2000 | 2001 | 2002 | 2003 | 2004 | |||||||||||||||||||||||||||
Long-Term Debt | $ | 164.6 | $ | 119.9 | $ | 112.3 | $ | 108.3 | $ | 164.6 | $ | 119.9 | $ | 112.3 | $ | 108.3 | $ | 101.4 | ||||||||||||||||||
Receivable Securitization | — | $ | 40.0 | $ | 25.9 | $ | 13.0 | — | 40.0 | 25.9 | 13.0 | 16.5 | ||||||||||||||||||||||||
Total Financing Arrangements | $ | 164.6 | $ | 159.9 | $ | 138.2 | $ | 121.3 | $ | 164.6 | $ | 159.9 | $ | 138.2 | $ | 121.3 | $ | 117.9 | ||||||||||||||||||
Increase/(Decrease) | — | $ | (4.7 | ) | $ | (21.7 | ) | $ | (16.9 | ) | — | $ | (4.7 | ) | $ | (21.7 | ) | $ | (16.9 | ) | $ | (3.4 | ) | |||||||||||||
In summary, the Company’s results have sufferedperformance was fueled in 2004 by a turnaround in overall market conditions, including an enhanced metal pricing environment. Management’s cost and productivity initiatives during the recent difficult years due largelypositioned the Company to the economics within its primary customer markets. Management initiated several actions that served to generate cash, which in turn, reduced the Company’s debt load and restructured its base operating costs to better position itself to favorably leverage incremental sales in the future. Manytake full advantage of the actions initiated resultedimproved market dynamics in charges being taken against current year earnings in2004 and generate substantial shareholder returns while continuing to de-leverage the form of impairment or other special charges ($11.5 million in 2003).balance sheet.
Current Business Outlook
InYear-end 2004 favorable PMI index is an indicator that demand for the fourth quarterCompany’s products and services should continue at their current high levels in at least the short-term. Additionally, the steady decline in the dollar could lead to an increase in U.S. manufacturing goods exporting and likewise serve to hold down the rate of 2003,increase in imports of like products. At the marketplace and hence,end of 2004, raw material shortages used in the Company began to show signsproduction of metal were still prevalent, thereby keeping prices for metal products at high levels. As mentioned previously, some economic recovery. Specifically, fourth quarter salesprice inflation has started in 2003 were 6.6% ahead of the corresponding period in 2002. This increase was broad-based across most of our product lines, further confirming improvingplastic materials as well. Generally speaking, current business conditions in the manufacturing sector of the U.S. economy. Operating expenses excluding the impact of impairment charges, declined $3.5 million or 8.1% versus the first quarter of 2003, to a level of 29.6% of sales. Additionally, material costs from our suppliers have surged in recent months, resulting in immediate price increases on the Company’s transactional business.are favorable.
The Company’s plastic subsidiary, Total Plastics Inc., grew its revenue base by 12.0% in 2003 and currently represents more than 12% of the Company’s consolidated sales. This growth was achieved in part through the start-up of two new facilities in the New York and Florida markets. More detail on this business segment can be found in the year-to-year comparisons included in this section of the 10-K.8
In the very early weeks of 2004, the evidence of a manufacturing sector recovery continues through both increased demand and pricing. The January 2004 PMI was reported at 63.6, which is the highest it has been since late 1983. These market-driven factors, coupled with the Company’s lower cost structure due to actions completed in 2003, give management optimism concerning the Company’s 2004 business plan and its return to profitability.
Risk Factors
As part of its current financing agreements with its various lenders, the Company has specific principal payments required over the next few years as summarized below in Table 56(dollars in millions):
Table 56
2008 and | ||||||||||||||||||||
2004 | 2005 | 2006 | 2007 | Beyond | ||||||||||||||||
Required Principal Payments on Debt | $ | 8.2 | $ | 11.4 | $ | 16.2 | $ | 16.2 | $ | 56.3 |
2005 | 2006 | 2007 | 2008 | 2008 and | ||||||||||||||||
Beyond | ||||||||||||||||||||
Required Principal Payments on Debt | $ | 11.6 | $ | 16.4 | $ | 16.4 | $ | 19.3 | $ | 37.7 | ||||||||||
In addition, the Company’s principal source of cash besides cash from operating cashresults is derived from its Accounts Receivable Securitization Agreement (herein referred to as “Financing Agreement”), which expires in December 2005. It is management’s intent to replace this facility with a revolving credit line or some similar type of debt financing during 2005, but there can be no certainty of success.
Despite the recent signs of what appears to be an upswing inimproved recovery within the manufacturing sector of the U.S. economy, there can be no guarantee as to its magnitude or duration. Additionally, the Company’s ability to timely pass-through recently accelerating supplier-driven material cost increases to its customer base on a timely basis is also critical to meeting required debt service requirements and remaining in compliance with its debt covenants. Should the economic and market recovery turn out to be short term in length, management could pursue further options to ensure it generates enough cash to facilitate the required
8
payments of principal as outlined in its agreements with its primary lenders. These options could include, but not necessarily be limited to, further operating cost reductions and organizational restructuring, further working capital improvements, deferral of non-critical capital projects, sale of assets or business units, refinancing of the Company through additional equity or debt, infusions, or renegotiating existing long-term loans outstanding. Management cannot guarantee that any of these options will be available if needed. None of these options are under consideration at this time, other than the ongoing analysis and review of operating expense and levels of working capital required in the business.business and the aforementioned replacement of the expiring Accounts Receivable Securitization financing.
All current business conditions lead management to believe it will be able to generate sufficient cash from operations and planned working capital improvements, to fund its ongoing capital expenditure program and to meet its debt obligations. Management also believes improved results stemming from current favorable business conditions has placed the Company in a position to successfully refinance its Financing Agreement expiring in December 2005.
Results of Operations: Year-to-Year Comparisons and Commentary
The following financial comparisons include certain significant changes in the Company’s structure or business that are considered to be important to the reader’s general understanding when viewing results of operations for the years presented.
On May 1, 2002 the Company acquired its joint venture partner’s remaining interest in Metal Express. The results of this entity, a wholly owned subsidiary, have been consolidated into Castle’s financial statements as of the date of acquisition.
In the second quarter of 2003, the Company initiated a major restructuring program that included the sale or closing of several under-performing and cash consuming business units. Management believes thethat restructuring willhas better posturepostured the Company to participate in the current economic recovery by shedding business units that have in recentpast years either produced operating losses, consumed disproportionate amounts of cash, or both, and arewere not strategic fits with the Company’s core business.
In the fourth quarter of 2003, the Company incurred additional non-recurring charges associated with equipment lease buyout provisions for assets included in the sale of a non-strategic business unit and for the negotiated early property lease buyout and related write-off of leasehold improvements of a vacated facility.
Total restructuring related charges for 2003 were $11.5 million on a pretaxpre-tax basis. The following table summarizes the charges by category. Further details on these charges can be found in Footnote 8.
9
Summary of 2003 Special Charges
(Dollars in millions)
Impairment | ||||||||||||||||||||||||||||||||||||||||||||||||
Impairment | Long- | Joint | Lease | Total | ||||||||||||||||||||||||||||||||||||||||||||
Joint | Lease | Total | Lived | Venture | Termination | Special | ||||||||||||||||||||||||||||||||||||||||||
Long-Lived | Venture | Termination | Special | Inventory | Assets | Investment | Costs | Other | Charges | |||||||||||||||||||||||||||||||||||||||
Inventory | Assets | Investment | Costs | Other | Charges | |||||||||||||||||||||||||||||||||||||||||||
Close KSI, LLC | $ | 0.8 | $ | 3.1 | $ | — | $ | 0.6 | $ | 0.8 | $ | 5.3 | $ | 0.8 | $ | 3.1 | $ | — | $ | 0.6 | $ | 0.8 | $ | 5.3 | ||||||||||||||||||||||||
Sell Keystone Honing | 0.8 | 0.8 | — | — | — | 1.6 | 0.8 | 0.8 | — | — | — | 1.6 | ||||||||||||||||||||||||||||||||||||
Sell Equity Interest in Laser Precision | — | — | 3.3 | — | — | 3.3 | — | — | 3.3 | — | — | 3.3 | ||||||||||||||||||||||||||||||||||||
Sell Equity Interest in Energy Alloys | — | — | 0.2 | — | — | 0.2 | — | — | 0.2 | — | — | 0.2 | ||||||||||||||||||||||||||||||||||||
Other Asset | — | 0.6 | — | 0.5 | — | 1.1 | ||||||||||||||||||||||||||||||||||||||||||
Impairments and Lease | — | 0.6 | — | 0.5 | — | 1.1 | ||||||||||||||||||||||||||||||||||||||||||
Terminations | ||||||||||||||||||||||||||||||||||||||||||||||||
Other Asset Impairments and Lease Terminations | — | 0.6 | — | 0.5 | — | 1.1 | ||||||||||||||||||||||||||||||||||||||||||
Total | $ | 1.6 | $ | 4.5 | $ | 3.5 | $ | 1.1 | $ | 0.8 | $ | 11.5 | $ | 1.6 | $ | 4.5 | $ | 3.5 | $ | 1.1 | $ | 0.8 | $ | 11.5 | ||||||||||||||||||||||||
9Effective January 1, 2004 the Company purchased the remaining joint venture partner’s interest in Castle de Mexico, S.A. de C.V. The results of this entity have been consolidated in the Company’s financial statements as of the effective date of the acquisition.
On March 31, 2004 Total Plastics Inc. (TPI), the Company’s subsidiary comprising its plastics segment (TPI) purchased the remaining 40% interest in its Paramont Machine Company subsidiary. The results of this wholly owned subsidiary have been consolidated in the Company’s financials statements as of the effective date of the acquisition.
10
2004 Results Compared to 2003
Consolidated results by business segment are summarized in the following table for years 2004 and 2003. Impairment and other special charges are shown separately for clarification purposes.
Operating Results by Segment(dollars in millions)
Year Ended December 31, | ||||||||||||||||
2004 | 2003 | Fav/(Unfav) | % Change | |||||||||||||
Net Sales | ||||||||||||||||
Metals | $ | 671.2 | $ | 475.3 | $ | 195.9 | 41.2 | % | ||||||||
Plastics | 89.8 | 67.7 | 22.1 | 32.6 | ||||||||||||
Total Net Sales | $ | 761.0 | $ | 543.0 | $ | 218.0 | 40.1 | |||||||||
Gross Material Margin | ||||||||||||||||
Metals | $ | 188.4 | $ | 135.2 | $ | 53.2 | 39.3 | % | ||||||||
% of Metals Sales | 28.1 | % | 28.4 | % | (0.3 | )% | ||||||||||
Metals Special Charges | — | (1.6 | ) | 1.6 | ||||||||||||
Plastics | 29.1 | 23.4 | 5.7 | 24.3 | ||||||||||||
% of Plastics Sales | 32.4 | % | 34.6 | % | (2.2 | )% | ||||||||||
Total Gross Material Margin | $ | 217.5 | $ | 157.0 | $ | 60.5 | 38.5 | % | ||||||||
% of Total Sales | 28.6 | % | 28.9 | % | (0.3 | )% | ||||||||||
Operating Expense | ||||||||||||||||
Metals | $ | (155.4 | ) | $ | (141.0 | ) | $ | (14.4 | ) | (10.2 | )% | |||||
Metals Impairment | — | (6.5 | ) | 6.5 | ||||||||||||
Plastics | (23.6 | ) | (20.6 | ) | (3.0 | ) | (14.6 | ) | ||||||||
Other | (4.9 | ) | (2.6 | ) | (2.3 | ) | ||||||||||
Total Operating Expense | $ | (183.9 | ) | $ | (170.7 | ) | $ | (13.2 | ) | (7.7 | )% | |||||
% of Total Sales | (24.2 | )% | (35.9 | )% | 11.7 | % | ||||||||||
Operating Income (Loss) | ||||||||||||||||
Metals | $ | 33.0 | $ | (5.8 | ) | $ | 38.8 | |||||||||
% of Metals Sales | 4.3 | % | (1.2 | )% | 5.5 | % | ||||||||||
Metals Special Charges and Impairment | — | (8.1 | ) | 8.1 | ||||||||||||
Plastics | 5.5 | 2.8 | 2.7 | |||||||||||||
% of Plastics Sales | 6.1 | % | 4.1 | % | 2.0 | % | ||||||||||
Other | (4.9 | ) | (2.6 | ) | (2.3 | ) | ||||||||||
Total Operating Income (Loss) | $ | 33.6 | $ | (13.7 | ) | $ | 47.3 | |||||||||
% of Total Sales | 4.4 | % | (2.5 | )% | 6.9 | % |
“Other” includes costs of executive and legal departments which are shared by both operating segments of the Company. | ||
Net Sales:
Consolidated net sales for the Company of $761.0 million are up $218.0 million or 40.1% versus last year. Improved market conditions in the manufacturing sector of the U.S. economy and shortages in raw materials used in metal production have fueled sales growth in terms of both price and real volume. Metals segment sales of $671.2 million are up $195.9 million or 41.2% versus 2003. Management estimates that the impact of 2004 material price escalation accounted for approximately two-thirds of the sales increase. The Company’s wholly-owned Mexican subsidiary added $14.6 million of sales in 2004. The balance of the year-over-year sales growth in this segment is due to increased volume driven by healthier market conditions. Plastics segment sales of $89.8 million increased $22.1 million or 32.6% versus prior year. Roughly 3% of this increase is due to material price inflation with the balance of growth resulting from planned geographic expansion the Company initiated in 2003.
11
Gross Material Margins and Operating Profit (Loss):
On a consolidated basis, gross material margins increased $60.5 million or 38.5% to a level of $217.5 million in 2004. Increased volume and material cost and margin pass-through account for this improvement versus 2003. Within its Metals segment, the Company recorded $1.6 million of impairment related charges in 2003. See Footnote 8 for more details on the nature of these charges. Included in the 2004 margin are charges totaling $5.2 million resulting from company-wide physical inventories conducted in the third and fourth quarter. The Mexican operation contributed $3.2 million of margin in 2004. Total gross material margin within the Metals segment increased by $54.8 million or 41.0% including these factors. The Plastics segment increased gross material margins in 2004 by $5.7 million or 24.3%. Margin as a percent of sales declined during the year in this segment largely due to product and customer mix. Included in the 2004 margin for the Plastics segment are $0.5 million of charges associated with an annual physical inventory conducted in the fourth quarter.
In 2003, the Company incurred a $13.7 million operating loss on a consolidated basis, including $8.1 million of impairment and other special charges associated with management’s decision to exit certain business units and dispose of certain capital assets. No impairment or special chares were recorded in 2004. The Company recorded a $2.6 million unfavorable net LIFO (last-in, fast-out) charge (LIFO loss less inventory revaluation gain) in 2004, compared to a $2.4 million charge in 2003.
Consolidated operating expenses increased $13.2 million or 7.7% in 2004 in support of volume growth. Operating expense as a percent of sales declined from 30.2% (excluding impairment charges) in 2003 to 24.2% in 2004. More importantly, the incremental year-over-year increase in operating expense as a percent of incremental sales growth was 6.1%, reflecting the Company’s ability to support significant sales growth with a nominal increase in variable expense. Metals segment operating expense increased $14.4 million (excluding $6.5 million of impairment charges recorded in 2003) or 7.4% of their 41.2% sales increase. Operating expenses in the Plastics segment increased $3.0 million or 14.6% of their 32.6% growth in sales.
The Company’s “Other” operating segment includes expenses related to executive and legal services that benefited both segments. This expense increased to $4.9 million in 2004 from $2.6 million in 2003. Most of the increase was attributable to management incentives and initial year Sarbanes-Oxley compliance costs.
Consolidated operating profit earned in 2004 was $33.6 million compared to an operating loss of $13.7 million one year ago.
Other Income and Expense, and Net Results:
The Company’s sole remaining joint venture, Kreher Steel, experienced similar favorable market dynamics as the Company’s own Metals segment throughout the year. In 2004, equity earnings associated with the Company’s 50% interest in this joint venture were $5.2 million. In 2003, the Company recorded a $3.5 million impairment charge associated with certain joint venture investments which management elected to sell or exit (see Footnote 8 for more details). Equity earnings in 2003, excluding the impairment charge were $0.1 million.
Interest expense decreased $0.7 million to $9.0 million in 2004. This reflected lower long-term debt levels. Due to lower average amounts sold under its Financing Agreement in 2004, the Company recorded a $1.0 million discount on receivables sold versus $1.2 million in 2003.
Consolidated net income from continuing operations in 2004 was $16.9 million compared to a loss of $17.9 million in 2003. In the fourth quarter of 2003, the Company recorded an additional $0.2 million loss (net of taxes) on the disposal of its United Kingdom subsidiary (sold in May 2002) associated with an outstanding customer product liability claim. This loss is shown in Discontinued Operations in the Company’s comparative Statement of Operations. Preferred dividends in 2004 and 2003 of $1.0 million each year are related to the Company’s November 2002 private placement of cumulative convertible preferred stock with its largest shareholder.
The Company reported net income of $15.9 million or $1.01 per share (basic) in 2004 versus a net loss of $19.0 million or $1.20 per share in 2003.
12
2003 Results Compared to 2002
Consolidated results by business segment are summarized in the following table for years 2003 and 2002. Impairment and other special charges are shown separately for clarification purposes.
Operating Results by Segment
(dollars in millions)
Year Ended December 31, | ||||||||||||||||||||||||||||||||
Year Ended December 31, | 2003 | 2002 | Fav/(Unfav) | % Change | ||||||||||||||||||||||||||||
2003 | 2002 | Fav/(Unfav) | % Change | |||||||||||||||||||||||||||||
Net Sales | ||||||||||||||||||||||||||||||||
Metals | $ | 475.3 | $ | 477.7 | $ | (2.4 | ) | (0.5 | )% | $ | 475.3 | $ | 477.7 | $ | (2.4 | ) | (0.5 | )% | ||||||||||||||
Plastics | 67.7 | 60.4 | 7.3 | 12.1 | 67.7 | 60.4 | 7.3 | 12.1 | ||||||||||||||||||||||||
Total Net Sales | 543.0 | 538.1 | 4.9 | 0.9 | $ | 543.0 | $ | 538.1 | $ | 4.9 | 0.9 | % | ||||||||||||||||||||
Gross Material Margin | ||||||||||||||||||||||||||||||||
Metals | $ | 135.2 | $ | 138.9 | $ | (3.7 | ) | (2.7 | )% | $ | 135.2 | $ | 138.9 | $ | (3.7 | ) | (2.7 | )% | ||||||||||||||
% of Metals | 28.4 | % | 29.1 | % | (0.7 | )% | ||||||||||||||||||||||||||
% of Metals Sales | 28.4 | % | 29.1 | % | (0.7 | )% | ||||||||||||||||||||||||||
Metals Special Charges | (1.6 | ) | — | (1.6 | ) | (1.6 | ) | — | (1.6 | ) | ||||||||||||||||||||||
Plastics | 23.4 | 21.2 | 2.2 | 10.4 | 23.4 | 21.2 | 2.2 | 10.4 | ||||||||||||||||||||||||
% of Plastics | 34.6 | % | 35.1 | % | (0.5 | )% | ||||||||||||||||||||||||||
% of Plastics Sales | 34.6 | % | 35.1 | % | (0.5 | )% | ||||||||||||||||||||||||||
Total Gross Material Margin | 157.0 | 160.1 | (3.1 | ) | (1.9 | ) | $ | 157.0 | $ | 160.1 | $ | (3.1 | ) | (1.9 | )% | |||||||||||||||||
% of Total | 28.9 | % | 29.8 | % | (0.8 | )% | ||||||||||||||||||||||||||
% of Total Sales | 28.9 | % | 29.8 | % | (0.8 | )% | ||||||||||||||||||||||||||
Operating Expense | ||||||||||||||||||||||||||||||||
Metals | $ | (141.0 | ) | $ | (142.8 | ) | $ | 1.8 | 1.3 | % | $ | (141.0 | ) | $ | (142.8 | ) | $ | 1.8 | 1.3 | % | ||||||||||||
Metals Impairment | (6.5 | ) | — | (6.5 | ) | — | (6.5 | ) | — | (6.5 | ) | — | ||||||||||||||||||||
Plastics | (20.6 | ) | (18.8 | ) | (1.8 | ) | (9.6 | ) | (20.6 | ) | (18.8 | ) | (1.8 | ) | (9.6 | ) | ||||||||||||||||
Other | (2.6 | ) | (2.9 | ) | 0.3 | 10.3 | (2.6 | ) | (2.9 | ) | 0.3 | 10.3 | ||||||||||||||||||||
Total Operating Expense | (170.7 | ) | (164.5 | ) | (6.2 | ) | (3.8 | ) | $ | (170.7 | ) | $ | (164.5 | ) | $ | (6.2 | ) | (3.8 | )% | |||||||||||||
% of Total | (35.9 | )% | (30.6 | )% | (0.9 | )% | ||||||||||||||||||||||||||
% of Total Sales | (35.9 | )% | (30.6 | )% | (0.9 | )% | ||||||||||||||||||||||||||
Operating Income (Loss) | ||||||||||||||||||||||||||||||||
Metals | $ | (5.8 | ) | $ | (3.9 | ) | $ | (1.9 | ) | $ | (5.8 | ) | $ | (3.9 | ) | $ | (1.9 | ) | ||||||||||||||
% of Metals Sales | (1.2 | )% | (0.8 | )% | (0.4 | )% | (1.2 | )% | (0.8 | )% | (0.4 | )% | ||||||||||||||||||||
Metals Special Charges and Impairment | (8.1 | ) | — | (8.1 | ) | (8.1 | ) | — | (8.1 | ) | ||||||||||||||||||||||
Plastics | 2.8 | 2.4 | 0.4 | 2.8 | 2.4 | 0.4 | ||||||||||||||||||||||||||
% of Plastics Sales | 4.1 | % | 4.0 | % | 8.3 | % | 4.1 | % | 4.0 | % | 8.3 | % | ||||||||||||||||||||
Other | (2.6 | ) | (2.9 | ) | 0.3 | (2.6 | ) | (2.9 | ) | 0.3 | ||||||||||||||||||||||
Total Operating Loss | (13.7 | ) | (4.4 | ) | (9.3 | ) | $ | (13.7 | ) | $ | (4.4 | ) | $ | (9.3 | ) | |||||||||||||||||
% of Total Sales | (2.5 | )% | (0.8 | )% | (1.7 | )% | (2.5 | )% | (0.8 | )% | (1.7 | )% |
“Other” includes costs of executive and legal departments which are shared by both operating segments of the Company. | ||
“Other” includes costs of executive and legal departments which are shared by both operating segments of the Company.
1013
Net Sales:
Consolidated net sales in 2003 of $543.0 million were $4.9 million, or 0.9%, ahead of the prior year. Most of this year-to-year increase was realized in the fourth quarter during which consolidated sales were up $8.2 million, or 6.6%, versus the corresponding quarter of 2002. This reflectsreflected improving market activity at the time, principally in the Metals segment, as the manufacturing sector of the U.S. economy appears to bewas showing signs of sustained recovery from its prior three-year lull. Metals segment net sales of $475.3 million (approximately 87.6%87.5% of consolidated sales) for the year arewere slightly down versus 2002. Most of this decline iswas due to the Company’s decision to exit certain non-performing business units in 2003. Plastics segment sales of $67.7 million (approximately 12.4%12.5% of consolidated sales) were up $7.3 million, or 12.1%, over 2002, due in part to the Company expanding operations into New York and Florida.
Gross Material Margins and Operating Profit (Loss):
Consolidated gross material margin of $157.0 million, including special charges of $1.6 million, iswas $3.1 million lower in 2003 than lastthe previous year. The year-to-year decline in the Metals segment was due primarily to product mix and competitive pricing. The Plastics segment margins remainremained strong and ahead of last year2002 on higher sales volume.
The Company incurred a $13.7 million operating loss on a consolidated basis, including $8.1 million of impairment and other special charges associated with management’s decision to exit certain business units and dispose of certain capital assets. The company also recorded a $2.4 million unfavorable net LIFO (Last-In, Last-Out) charge (LIFO loss less inventory revaluation gain) in 2003, compared to a $1.3 million charge in 2002.
The Company’s “Other” operating segment includes expenses related to executive and legal services that benefitbenefited both segments. This expense decreased to $2.6 million in 2003 from $2.9 million in 2002.
Other Income and Expense, and Net Results:
The Company recorded a $3.5 million impairment charge in 2003 associated with certain joint venture investments which management elected to sell or exit (see Footnote 8 for more details).
Interest expense increased $2.2 million to $9.7 million in 2003. This reflectsreflected the higher interest rates agreed to as part of the Company renegotiating its lending agreements in late 2002. The revised lending agreements allowed for more flexibility within the financial covenants that the Company needed in order to restructure its operating base and exit non-strategic or non-performing business units. Due to lower amounts sold under its Accounts Receivable Securitization Facility in 2003, the Company recorded a $1.2 million discount on receivables sold versus $3.4 million in 2002.
Consolidated net loss from continuing operations was $17.9 million in 2003 versus a loss of $9.3 million in the previous year. In the fourth quarter of 2003, the Company recorded an additional $0.2 million loss (net of taxes) on the disposal of its United Kingdom subsidiary (sold in May 2002) associated with an outstanding customer product liability claim. This loss is shown in Discontinued Operations in the Company’s Statement of Operations. Preferred dividends in 2003 of $1.0 million reflectsreflected a full year of dividends associated with the November 2002 private placement of cumulative convertible preferred stock by the Company’s largest shareholder.
The Company reported a net loss of $19.0 million or $1.20 per share in 2003 versus a net loss of $10.2 million, or $0.68 per share one year ago.
11
2002 Compared with 2001
Consolidated results by business segment are summarized in the following table for years 2002 and 2001.
Operating Results by Segment(dollars in millions)
Year Ended December 31, | ||||||||||||||||
2002 | 2001 | Fav/(Unfav) | % Change | |||||||||||||
Net Sales | ||||||||||||||||
Metals | $ | 477.7 | $ | 538.3 | $ | (60.6 | ) | (11.3 | )% | |||||||
Plastics | 60.4 | 55.0 | 5.4 | 9.8 | ||||||||||||
Total Net Sales | 538.1 | 593.3 | (55.2 | ) | (9.3 | ) | ||||||||||
Gross Material Margin | ||||||||||||||||
Metals | $ | 138.9 | $ | 156.2 | (17.3 | ) | (11.1 | )% | ||||||||
% of Metals | 29.1 | % | 29.0 | % | 0.1 | % | ||||||||||
Plastics | 21.2 | 20.0 | 1.2 | 6.0 | ||||||||||||
% of Plastics | 35.1 | % | 36.4 | % | (1.3 | % | ||||||||||
Special Charges | — | — | — | |||||||||||||
Total Gross Margin | 160.1 | 176.2 | (16.1 | ) | (9.1 | ) | ||||||||||
% of Total | 28.9 | % | 29.7 | % | 0.1 | % | ||||||||||
Operating Expense | ||||||||||||||||
Metals | $ | 142.8 | ) | $ | (151.0 | ) | $ | 8.2 | 5.4 | % | ||||||
Plastics | (18.8 | ) | (19.0 | ) | 0.2 | 1.1 | % | |||||||||
Other | (2.9 | ) | (3.3 | ) | 0.4 | 12.1 | % | |||||||||
Impairment | — | — | — | — | ||||||||||||
Total Operating Expense | (164.5 | ) | (173.3 | ) | 8.8 | 5.1 | % | |||||||||
% of Total | (30.6 | )% | (29.2 | )% | (1.4 | )% | ||||||||||
Operating Income (Loss) | ||||||||||||||||
Metals | $ | (3.9 | ) | $ | 5.1 | $ | (9.0 | ) | ||||||||
% of Metals Sales | (0.8 | )% | 0.9 | % | (1.7 | )% | ||||||||||
Plastics | 2.4 | 1.0 | 1.4 | |||||||||||||
% of Plastics Sales | 4.0 | % | 1.8 | % | 2.2 | % | ||||||||||
Other | (2.9 | ) | (3.3 | ) | 0.4 | |||||||||||
Total Operating Loss | (4.4 | ) | 2.8 | (7.2 | ) | |||||||||||
% of Total Sales | (0.8 | )% | 0.5 | % | (1.3 | )% |
“Other” includes costs of executive and legal departments which are shared by both operating segments of the Company.2002.
Net Sales:
Consolidated net sales for 2002 of $538.1 million were 9.3% below the $593.3 million generated in 2001. Excluding the effects of Metal Express, the decrease in sales was 10.7% due to lower Metals segment shipments, lower mill price levels, a product mix shift away from higher priced aerospace metals towards lower priced carbon products and intense price competition within the metal distribution industry. Approximately 89% of all revenues were derived from the Company’s core metals businesses with the remaining 11% from the distribution of plastics.
Revenue for the Metals segment decreased by $60.6 million, or 11.3% in 2002. Excluding the acquisition of Metal Express, which was consolidated effective May 2002, sales decreased by $69.1 million (12.8%). The decrease reflects a 5.4% decline in tons sold.
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Conversely, net sales in the Plastics segment increased by $5.4 million, or 9.8% over 2001. Although the segment experienced similar recessionary pressures as the Metals segment did early in 2002, a strong fourth quarter recovery (25% ahead of 2001 fourth quarter results) produced a favorable year-to-year sales comparison.
Gross Material Margins and Operating Profit (Loss):
Consolidated gross material margin on sales decreased by 9.1% to $160.1 million from $176.2 million in 2001. Gross margin percentages were relatively flat versus the prior year. During 2002 gross material margin was negatively impacted by a net LIFO (last-in, first-out) loss adjustment of $1.3 million as compared to a $3.3 million net LIFO loss adjustment in 2001. LIFO is the Company’s primary method of valuing inventory. Excluding the effects of the acquisition of Metal Express, gross material margin declined 11.4% and the gross margin percentage decreased to 29.5% in 2002 from 29.7% in 2001. Declining sales volume, product mix, margin compression and lower mill price levels were the main reasons for the reduction in gross material margins.
Total operating expenses in 2002 were $164.5 million as compared to $173.3 million in 2001, a decrease of $8.8 million, or 5.1%. Excluding the acquisition of Metal Express, the decrease was $13.2 million, or 7.6%. This reduction in operating expense was achieved despite only a 2.9% reduction in line items sold (order activity) in the metals segment, reflecting the Company’s ongoing emphasis on cost reduction and operating efficiencies. During 2001, depreciation and amortization expense included $1.0 million of amortization of goodwill. Due to the adoption of SFAS No. 142 “Goodwill and Other Intangible Assets”, goodwill is no longer amortized.
In 2002, the Company generated an operating loss of $4.4 million compared with an operating profit of $2.8 million in 2001.
The Metals segment operating profit decreased $9.0 million to a $3.9 million loss from a profit of $5.1 million in 2001. Gross material margins decreased $17.3 million while gross material margin percentage increased slightly to 29.1% from 29.0% in 2001. Other operating expenses for the same period decreased by $8.2 million. Excluding the effects of the acquisition of Metal Express, operating profit decreased by $8.7 million with gross material margins decreasing $21.2 million resulting in a gross material margin percentage of 28.8%. The reduction in gross material margin was partially offset by a decrease in other operating expenses of $12.5 million (excluding Metal Express), or 8.3%. Although sales volume decreased 12.9%, the number of lines handled (booked, processed, shipped and billed) declined by only 2.9% reflecting a 10% reduction in average order size. In order to mitigate the effects of the declining sales and order size, major cost cutting and efficiency programs were put in place over the past two years. The result of these programs has been to increase productivity as measured by lines per employee by 14%.
The Plastics segment operating profit increased $1.4 million to $2.4 million in 2002. For the year, gross material margins increased $1.2 million even as gross material margin percentage decreased to 35.1% from 36.4% in 2001. The decrease in margin rates reflects the highly competitive pressures existing in the market place. Despite the increase in sales activity, continuing cost containment programs throughout the year resulted in a reduction in other operating expenses of $0.2 million.
The Company’s “Other” operating segment includes expenses related to executive and legal services that benefit both segments. This expense decreased to $2.9 million in 2002 from $3.3 million in 2001.
Other Income and Expenses, and Net Results:
In November 2002 the Company amended its debt covenants with its institutional and banking lenders. In consideration for those changes, the Company agreed to an increase of 200 basis points in interest rates. In December 2002 the existing accounts receivable securitization agreement was terminated and a new three-year commitment was established with another institution. The discount pricing on the new facility carries a comparable rate. A fee of $2.2 million was expensed during the year for establishment of the new facility ($0.9 million was expensed in 2001 for the initial setup and sales of receivables under the previous agreement). Total financing costs (interest expense, net and discount on sale of accounts receivable) increased by $0.2 million. Excluding the net difference in the initiation costs of the two receivable securitization facilities, financing expenses decreased by $1.1 million which is reflective of decreased short term rates which effect the accounts receivable securitization discount, the change from a higher priced revolver borrowing agreement in September 2001 to the lower cost accounts receivable
13
securitization facility, along with an overall reduction in debt and accounts receivable sold (see Liquidity and Capital Resources section).
During the second quarter of 2002, the Company sold its United Kingdom subsidiary for $6.5 million consisting of $3.3 million received in cash and $3.2 million to settle amounts owed by the United Kingdom subsidiary. The after-tax loss on the sale totalled $0.8 million. The financial statements for all periods have been restated to present the subsidiary as a discontinued operation in accordance with generally accepted accounting principles.
In November 2002 the Company’s largest stockholder purchased, through a private placement, $12.0 million ($11.2 million net of transaction expenses) of eight-percent cumulative convertible preferred stock. Dividends of $0.1 million had been accrued in 2002 from the date of the purchase.
The net loss applicable to common stock for 2002, including $0.1 million of preferred dividends, was $10.2 million, or $0.68 per share, as compared to last year’s net loss of $5.0 million, or $0.36 per share, reflecting the continuing recessionary conditions in most of the industries Castle serves.
Recent Accounting PronouncementsPronouncements:
A description of recent accounting pronouncements is included in Footnote 1 “Notes to Consolidated Financial Statements” under the caption “New Accounting Standards”.
Critical Accounting PoliciesPolicies:
The financial statements have been prepared in accordance with generally accepted accounting principals, which necessarily include amounts that are based on estimates and assumptions. The following is a description of some of the more significant valuation policies:
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Accounts Receivable– Accounts receivable are evaluated on a quarterly basis and any significant customers with delinquent balances are reviewed to determine future collectibility. Assessments are based on legal issues (bankruptcy status), past history, current financial and credit agency reports, and the experience of the credit representatives. Accounts judged to be uncollectible are reserved or written off in the quarter in which the determination is made. Additional reserves are maintained based on the Company’s historical bad debt experience.
Inventory– Substantially all inventories are valued using the last-in first-out (LIFO) method. Under this method, the current value of material sold is recorded as cost of material sold rather than the actual cost in the order in which it was purchased. This means that older costs are included in inventory, which may be higher or lower than current costs. This method of valuation is subject to year-to-year fluctuations in cost of material sold, which is influenced by the inflation or deflation existing within the metals or plastics industry. The use of LIFO for inventory valuation was chosen to better match replacement cost of inventory with the current pricing used to bill customers.
Retirement Plans– The Company values retirement plan assets and liabilities based on assumptions and valuations established by management following consultation with its independent actuary. Future valuations are subject to market changes, which are not in the control of the Company and could differ materially from the amounts currently reported.
Insurance Plans –The Company is self-insured for a portion of worker’s compensation and automobile insurance. Self-insurance amounts are capped for individual claims, and, in the aggregate, for each policy year by an insurance company. Self-insurance reserves are based on unpaid, known claims (including related administrative fees assessed by the insurance company for claims processing) and a reserve for incurred but not reported claims based on the Company’s historical claim experience and development.
Revenue Recognition –Revenue from product sales is largely recognized upon shipment, whereupon title passes and the Company has no further obligations to the customer. The Company has entered into consignment inventory agreements with a few select customers whereby revenue is not recorded until the customer has consumed product from the consigned inventory and title has passed. Provisions for sales discounts and rebates to customers, and returns and other adjustments are provided for in the same period the related sales are recorded. Shipping and handling charges are recorded as operating expenses in the period incurred.
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Goodwill Impairment –The carrying value of Goodwill is evaluated annually during the first quarter of each fiscal year or when certain events (e.g. the potential sale of an entity) occur which require a more current valuation. The valuation is based on the comparison of an entity’s discounted cash flow (equity valuation) to its carrying value. If the carrying value exceeds the equity valuation the Goodwill is impaired appropriately. The equity valuation is based on historical data and management assumptions of future cash flow. Since the assumptions are forward looking, actual results could differ materially from those used in the valuation process.
Income Taxes –Income tax provisions are based on income reported for financial statement purposes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for reporting purposes and the amounts used for income tax purposes. The Company records valuation allowances or adjustments against its deferred tax assets when it is more likely than not that the amounts will not be recognized.
Capital Expenditures:
Capital expenditures for 20032004 totalled $5.1$5.3 million as compared to $1.4$5.1 million in 2002.2003. Major expenditures included the replacement and upgrading of machinery and equipment, and enhancements to information processing systems. It is anticipated that capital expenditures will be approximately $3.0$6.0 - $7.0 million in 2004,2005, mainly in the area of customary repair and replacement of existing machinery and equipment.equipment and a planned increased investment in upgrading or replacing certain of the Company’s existing business systems.
15
Capital expenditures for 20022003 totalled $1.4$5.1 million as compared to $6.8$1.4 million in 2001.2002. Major expenditures included replacement of machinery and equipment, increased processing capabilities and enhancements to a warehouse management system.
During 2002, and 2001, the Company sold and leased back approximately $2.0 million and $2.5 million of fixed assets respectively, which added to cash flow and minimized other financing requirements. The leaseback transactions are recorded as operating leases and therefore are not reflected as debt on the accompanying Consolidated Financial Statements.
Liquidity and Capital ResourcesResources:
The Company’s 2004 operating results have suffered in recent years due largely to thereflect significantly improved economic conditions within its primary customer markets. ManagementIn 2003, management initiated several actions that served to generate cash, which in turn, reduced the Company’s debt load and restructured its base operating costs, to better positionpositioning itself to favorably leverage 2004 and future years incremental sales in the future.sales. Many of the actions initiated resulted in charges beingthat were taken against current year2003 earnings in the form of impairment or other special charges ($11.5 million recorded in 2003).
Additionally, in the last threefour years, the Company aggressively lowered its investment in inventory and sold unused facility space in select operations. The cash generated from these actions along with the previously mentioned sale of certain non-performing business units, allowed the Company to reduce its total debt and other financing arrangements (including its accounts receivable securitization facility)Financing Agreement) by $43.3$46.7 million since the end of 2000 as well as fund its ongoing operations.
The Company’s principal internal sources of liquidity are earnings from operations and management of working capital. Additionally, the Company utilizes an Accounts Receivable Securitization FacilityFinancing Agreement (see Footnote 9 for more details) as its primary external funding source for working capital needs.
Cash flow from operating activities in 20032004 was a negative $1.1positive $13.6 million. This included a $12.9$3.5 million reductionincrease in accounts receivable sold under the Company’s Accounts Receivable Securitization FacilityFinancing Agreement due to reducedadditional funding requirements for operations. Excluding the impact of reduced receivables sold under the Company’s Accounts Receivable Securitization Facility,Financing Agreement, cash flow from operations was a positive $11.8$12.3 million.
Working capital, excluding the current portion of long-term debt, of $91.3$106.8 million is down $8.8up $15.5 million, or 8.8%16.6%, since the start of 2003.2004. Average inventory levels have declined throughout the year until late inmid-year largely due to tightening metal supply and related extended mill delivery lead times. During the fourth quarter, when management electedthe Company’s supplier base was beginning to increasemake progress on shortening delivery lead times, resulting in rising stock levels at year-end. The higher inventory levels at the levelend of material stocked due to increasing demand and in expectation of2004 will support the Company’s historically seasonally stronger first quarter sales. Additionally, the Company received $9.9 million of income tax refunds in theand second quarter of 2003. The refund was duesales activity in 2005. Days sales in inventory (DSI) declined to the carry-back of net operating losses for federal income tax purposes.120 days on average in 2004 from 153 days one year ago. Gross trade receivables (prior to the impact of receivables sold under the Securitization Facility)Financing Agreement) increased $7.1$29.6 million
15
through December 31, 20032004 largely due to higher than normal year-end sales demand.material pricing and volume growth. The days sales outstanding (DSO) remained constant at 48year-end 2004 were 45.8 days, year-over-year.an improvement versus 48.0 days in 2003.
At December 31, 2003, $13.02004, $16.5 million of receivables were sold or utilized under the Accounts Receivable Securitization FacilityFinancing Agreement (versus $25.9$13.0 million at December 31, 2002)2003). Available funds remaining under this facility are $20.1were $27.1 million at year-end 2003.2004.
As part of management’s decisionThe Company paid $6.3 million in 2004 for tax payments pertaining primarily to sell underutilized or non-performing assets, a total of $16.2 million of cash was received during 2003. During the third quarter of 2003, theestimated federal and state income tax obligations. The Company received cash of $1.5also paid $8.9 million on the sale of its joint venture interest in Energy Alloys, $0.8 million on the sale of assets of its honing business and $10.5 million on the sale of its Los Angeles facility. During the fourth quarter of 2003, the Company received $3.4 million on the sale of its Kansas City facility. The Company entered into a long-term operating lease at its Los Angeles and Kansas City facilities subsequent to the sale of these properties, incurring rental expense only for the floor space needed for its operations.or other debt related obligations due.
As of December 31, 2003,2004, the Company remains in compliance with the covenants of its financial agreements,Financial Agreements, which require it to maintain certain funded debt-to-capital ratios, working capital-to-debt ratios and a minimum equity value as defined within the agreement. A summary of covenant compliance is shown below.
Actual | ||||||||
Required | 12/31/ 04 | |||||||
Debt-to-Capital Ratio | 0.37 | |||||||
Working Capital-to-Debt Ratio | >1.00 | 1.74 | ||||||
Minimum Equity Value | $ | $ | ||||||
*Decreases to .55 on March 31, 2004
All current business conditions lead management to believe it will be able to generate sufficient cash from operations and planned working capital improvements (principally from reduced inventories), to fund its ongoing capital expenditure programs and meet its debt obligations.
16
Cash CommitmentsCommitments:
The following is a schedule of cash commitments for long-term debt and non-cancelable lease payments:
Payments Due In | Debt | Leases | Total | Debt | Leases | Total | ||||||||||||||||||
2004 | $ | 8,248 | $ | 10,366 | $ | 18,614 | ||||||||||||||||||
2005 | 11,371 | 9,545 | 20,916 | $ | 11,607 | $ | 12,305 | $ | 23,912 | |||||||||||||||
2006 | 16,189 | 8,509 | 24,698 | 16,390 | 11,803 | 28,193 | ||||||||||||||||||
2007 | 16,208 | 6,918 | 23,126 | 16,390 | 10,038 | 26,428 | ||||||||||||||||||
2008 | 19,109 | 5,890 | 24,999 | 19,304 | 8,969 | 28,273 | ||||||||||||||||||
2009 | 16,600 | 6,993 | 23,593 | |||||||||||||||||||||
Later Years | 37,157 | 14,519 | 51,676 | 21,088 | 13,763 | 34,851 | ||||||||||||||||||
Total | $ | 108,282 | $ | 55,747 | $ | 164,029 | $ | 101,379 | $ | 63,871 | $ | 165,250 | ||||||||||||
ItemITEM 7a – —Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to various rate and metal price risks that arise in the normal course of business. The Company finances its operations with fixed and variable rate borrowings and the Accounts Receivable Securitization Facility.Financing Agreement. Market risk arises from changes in variable interest rates. An increase of 1% in interest rates on the variable rate indebtedness and Accounts Receivable Securitization FacilityFinancing Agreement would increase the Company’s annual interest expense and discount on sale of accounts receivable by approximately $0.2$0.1 million. The Company’s raw material costs are comprised primarily of highly engineered metals and plastics. Market risk arises from changes in the price of steel, other metals and plastics. Although average selling prices generally increase or decrease as material costs increase or decrease, the impact of a change in the purchase price of materials is more immediately reflected in the Company’s cost of goods sold than in its selling prices.
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Commitments and Contingencies:
The Company is the defendant in several lawsuits arising out of the conduct of its business. These lawsuits are incidental and occur in the normal course of the Company’s business affairs. It is the opinion of the Company’s in-house counsel, based on current knowledge, that no significant uninsured liability will result from the outcome of the litigation, and thus there is nothat would have material adverse effect on the consolidated financial exposureposition to the Company.
Equity Plan Disclosures:
The following table includes information regarding the Company’s equity compensation plans:
(a) | (b) | (c) | |||||||||||||||||||||||||||||
Number of securities remaining available | |||||||||||||||||||||||||||||||
Number of | for future | ||||||||||||||||||||||||||||||
(a) | (b) | (c) | securities to be | issuances under | |||||||||||||||||||||||||||
Number of securities remaining | issued upon | Weighted-average | equity compensation | ||||||||||||||||||||||||||||
Number of securities to be | Weighted-average | available for future issuances | exercise of | exercise price of | plans (excluding | ||||||||||||||||||||||||||
issued upon exercise | exercise price of | under equity compensation | outstanding | outstanding | securities | ||||||||||||||||||||||||||
of outstanding options, | outstanding options, | plans (excluding securities | options, warrants | options, warrants | reflected in column | ||||||||||||||||||||||||||
Plan category | warrants and rights | warrants and rights | reflected in column (a)) | and rights | and rights | (a)) | |||||||||||||||||||||||||
Equity compensation plans approved by security holders | 2,083,951 | $ | 9.73 | 125,599 | 1,881.019 | $ | 9.10 | 1,650,512 | |||||||||||||||||||||||
Equity compensation plans not approved by security holders | — | — | — | — | — | — | |||||||||||||||||||||||||
Total | 2,083,951 | $ | 9.73 | 125,599 | 1,881,019 | $ | 9.10 | 1,646,136 | |||||||||||||||||||||||
Controls and Procedures:
(a) Evaluation of Disclosure Controls and Procedures
Castle maintains a system of internal controls designed to provide reasonable assurance that its assets and transactions are properly recorded for the preparation of financial information. The system of internal controls is monitored and tested by Castle’s internal auditor. On a quarterly basis a formal senior management review of internal audit results; systems and procedures; variance reports; safety; physical security; and legal and human resource issues is conducted.
A review and evaluation was performed by the Company’s management, including the Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13s-14 under the Securities Exchange Act of 1934) as of a date within 90 days prior to the filing of this annual report. Based on that review and evaluation, the CEO and CFO have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, were effective in ensuring that the information the Company is required to disclose in this annual report is recorded, processed, summarized and reported in the time period required by the rules of the Securities and Exchange Commission.
(b) Changes in Internal Controls
There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no material weaknesses identified in the course of such review and evaluation and, therefore, the Company took no corrective measures.
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ITEM 8 —Financial Statements and Supplementary Data
Consolidated Statements of Operations
Years Ended December 31, | ||||||||||||
(Dollars in thousands, except per share data) | 2003 | 2002 | 2001 | |||||||||
Net sales | $ | 543,031 | $ | 538,143 | $ | 593,292 | ||||||
Cost of material sold | (384,459 | ) | (377,997 | ) | (417,113 | ) | ||||||
Special charges (Note 8) | (1,624 | ) | — | — | ||||||||
Gross material margin | 156,948 | 160,146 | 176,179 | |||||||||
Plant and delivery expense | (87,055 | ) | (87,902 | ) | (97,567 | ) | ||||||
Sales, general and administrative expense | (68,339 | ) | (67,720 | ) | (66,808 | ) | ||||||
Impairment and other operating expenses (Note 8) | (6,456 | ) | — | — | ||||||||
Depreciation and amortization expense | (8,839 | ) | (8,895 | ) | (8,961 | ) | ||||||
Total other operating expense | (170,689 | ) | (164,517 | ) | (173,336 | ) | ||||||
Operating (loss) income | (13,741 | ) | (4,371 | ) | 2,843 | |||||||
Equity in earnings (loss) of joint ventures | 137 | 446 | (586 | ) | ||||||||
Impairment to joint venture investment and advances (Note 8) | (3,453 | ) | — | — | ||||||||
Interest expense, net (Note 10) | (9,709 | ) | (7,459 | ) | (9,395 | ) | ||||||
Discount on sale of accounts receivable (Note 9) | (1,157 | ) | (3,429 | ) | (1,274 | ) | ||||||
Loss from continuing operations before income taxes | (27,923 | ) | (14,813 | ) | (8,412 | ) | ||||||
Income taxes (Note 6): | ||||||||||||
Federal – current | 2,321 | 10,501 | 6,461 | |||||||||
– deferred | 7,229 | (5,878 | ) | (3,900 | ) | |||||||
State | 496 | 917 | 474 | |||||||||
10,046 | 5,540 | 3,035 | ||||||||||
Net loss from continuing operations | (17,877 | ) | (9,273 | ) | (5,377 | ) | ||||||
Discontinued operations (Note 7): | ||||||||||||
Income (loss) from discontinued operations, net of income tax (benefit) expense of $(40) and $187, respectively | — | (26 | ) | 327 | ||||||||
Loss on disposal of subsidiary, net of income tax benefit of $(115) and $(188), respectively | (172 | ) | (752 | ) | — | |||||||
Net loss | (18,049 | ) | (10,051 | ) | (5,050 | ) | ||||||
Preferred dividends | (961 | ) | (103 | ) | — | |||||||
Net loss applicable to common stock | $ | (19,010 | ) | $ | (10,154 | ) | $ | (5,050 | ) | |||
Basic and diluted (loss) earnings per share from: | ||||||||||||
Continuing operations | $ | (1.19 | ) | $ | (0.63 | ) | $ | (0.38 | ) | |||
Discontinued operations | (0.01 | ) | (0.05 | ) | 0.02 | |||||||
Total | $ | (1.20 | ) | $ | (0.68 | ) | $ | (0.36 | ) | |||
Years Ended December 31, | ||||||||||||
(Dollars in thousands, except per share data) | 2004 | 2003 | 2002 | |||||||||
Net sales | $ | 760,997 | $ | 543,031 | $ | 538,143 | ||||||
Cost of material sold | (543,426 | ) | (384,459 | ) | (377,997 | ) | ||||||
Special charges (Note 8) | — | (1,624 | ) | — | ||||||||
Gross material margin | 217,571 | 156,948 | 160,146 | |||||||||
Plant and delivery expense | (95,229 | ) | (87,055 | ) | (87,902 | ) | ||||||
Sales, general, and administrative expense | (79,986 | ) | (68,339 | ) | (67,720 | ) | ||||||
Depreciation and amortization expense | (8,751 | ) | (8,839 | ) | (8,895 | ) | ||||||
Impairment and other operating expenses (Note 8) | — | (6,456 | ) | — | ||||||||
Total other operating expense | (183,966 | ) | (170,689 | ) | (164,517 | ) | ||||||
Operating income (loss) | 33,605 | (13,741 | ) | (4,371 | ) | |||||||
Interest expense, net (Note 10) | (8,968 | ) | (9,709 | ) | (7,459 | ) | ||||||
Discount on sale of accounts receivable (Note 9) | (969 | ) | (1,157 | ) | (3,429 | ) | ||||||
Income (loss) from continuing operations before income taxes and unconsolidated subsidiaries | 23,668 | (24,607 | ) | (15,259 | ) | |||||||
Income taxes (Note 6): | ||||||||||||
Federal- current | (920 | ) | 2,243 | 10,646 | ||||||||
- deferred | (6,913 | ) | 6,224 | (5,878 | ) | |||||||
State - current | (1,256 | ) | 478 | (637 | ) | |||||||
- deferred | (855 | ) | (204 | ) | 1,587 | |||||||
(9,944 | ) | 8,741 | 5,718 | |||||||||
Net income (loss) before equity in unconsolidated subsidiaries and before discontinued operations | 13,724 | (15,866 | ) | (9,541 | ) | |||||||
Equity earnings of joint ventures, net of tax | 3,153 | 83 | 268 | |||||||||
Impairment to joint venture investment and advances, net of taxes (Note 8) | — | (2,094 | ) | — | ||||||||
Net income (loss) before discontinued operations | 16,877 | (17,877 | ) | (9,273 | ) | |||||||
Discontinued operations (Note 7): | ||||||||||||
Loss from discontinued operations; net of income tax (benefit) of ($40) and $187 | — | — | (26 | ) | ||||||||
Loss on disposal of subsidiary, net of income (benefit) of ($115) and ($188) | — | (172 | ) | (752 | ) | |||||||
Net income (loss) | $ | 16,877 | $ | (18,049 | ) | $ | (10,051 | ) | ||||
Preferred dividends | (957 | ) | (961 | ) | (103 | ) | ||||||
Net income (loss) applicable to common stock | $ | 15,920 | $ | (19,010 | ) | $ | (10,154 | ) | ||||
Basic earnings (loss) per share | ||||||||||||
Net income (loss) before discontinued operations | $ | 1.01 | $ | (1.19 | ) | $ | (0.63 | ) | ||||
Discontinued operations | — | (0.01 | ) | (0.05 | ) | |||||||
$ | 1.01 | $ | (1.20 | ) | $ | (0.68 | ) | |||||
Diluted earnings (loss) per share | ||||||||||||
Net income (loss) before discontinued operations | $ | 1.01 | $ | (1.19 | ) | $ | (0.63 | ) | ||||
Discontinued operations | — | (0.01 | ) | (0.05 | ) | |||||||
$ | 1.01 | $ | (1.20 | ) | $ | (0.68 | ) | |||||
The accompanying notes to consolidated financial statements are an integral part of these statementsstatements.
18
Consolidated Balance Sheets
Years Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||
(Dollars in thousands) | 2003 | 2002 | 2001 | 2004 | 2003 | 2002 | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||
Cash and equivalents | $ | 2,455 | $ | 918 | $ | 1,801 | ||||||||||||||||||
Accounts receivable, less allowances of $500 in 2003, $700 in 2002 and $600 in 2001 (Note 9) | 54,232 | 34,273 | 19,353 | |||||||||||||||||||||
Inventories — principally on last-in, first-out basis (latest cost higher by approximately $42,900 in 2003, $39,000 in 2002 and $39,500 in 2001 | 117,270 | 131,704 | 129,521 | |||||||||||||||||||||
Cash and equivalents (Note 1) | $ | 3,106 | $ | 2,455 | $ | 918 | ||||||||||||||||||
Accounts receivable, less allowances of $1,760 in 2004, $526 in 2003, and $693 in 2002(Note 9) | 80,323 | 54,232 | 34,273 | |||||||||||||||||||||
Inventories (principally on last-in first-out basis) (latest cost higher by approximately $92,500 in 2004, $42,800 in 2003 and $39,000 in 2002 (Note 1) | 135,588 | 117,270 | 131,704 | |||||||||||||||||||||
Income tax receivable (Note 6) | 660 | 9,897 | 5,120 | 169 | 660 | 9,897 | ||||||||||||||||||
Advances to joint ventures and other current assets | 7,184 | 7,930 | 6,121 | 7,325 | 7,184 | 7,930 | ||||||||||||||||||
Assets held for sale | 1,067 | — | — | 995 | 1,067 | — | ||||||||||||||||||
Current assets–discontinued subsidiary | — | — | 8,941 | |||||||||||||||||||||
Total current assets | 182,868 | 184,722 | 170,857 | 227,506 | 182,868 | 184,722 | ||||||||||||||||||
Investment in joint ventures (Note 5) | 5,492 | 7,278 | 9,206 | 8,463 | 5,492 | 7,278 | ||||||||||||||||||
Goodwill (Note 1) | 31,643 | 31,947 | 31,212 | 32,201 | 31,643 | 31,947 | ||||||||||||||||||
Pension assets (Note 4) | 42,075 | 40,359 | 24,028 | |||||||||||||||||||||
Pension asset (Note 4) | 42,262 | 42,075 | 40,359 | |||||||||||||||||||||
Advances to joint ventures and other assets | 8,688 | 6,754 | 3,953 | 7,586 | 8,688 | 6,754 | ||||||||||||||||||
Property, plant and equipment, at cost: | ||||||||||||||||||||||||
Property, plant and equipment, at cost (Notes 1 and 5) | ||||||||||||||||||||||||
Land | 4,767 | 6,025 | 5,824 | 4,771 | 4,767 | 6,025 | ||||||||||||||||||
Buildings | 45,346 | 53,322 | 51,245 | |||||||||||||||||||||
Building | 45,514 | 45,346 | 53,322 | |||||||||||||||||||||
Machinery and equipment | 118,447 | 125,376 | 124,571 | 124,641 | 118,447 | 125,376 | ||||||||||||||||||
168,560 | 184,723 | 181,640 | 174,926 | 168,560 | 184,723 | |||||||||||||||||||
Less — accumulated depreciation | (100,386 | ) | (103,188 | ) | (96,111 | ) | ||||||||||||||||||
Less - accumulated depreciation | (109,928 | ) | (100,386 | ) | (103,188 | ) | ||||||||||||||||||
68,174 | 81,535 | 85,529 | 64,998 | 68,174 | 81,535 | |||||||||||||||||||
Non-current assets–discontinued subsidiary | — | — | 2,630 | |||||||||||||||||||||
Total assets | $ | 338,940 | $ | 352,595 | $ | 327,415 | $ | 383,016 | $ | 338,940 | $ | 352,595 | ||||||||||||
Liabilities and stockholders’ equity | ||||||||||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||
Accounts payable | $ | 67,601 | $ | 64,192 | $ | 47,824 | $ | 93,342 | $ | 67,601 | $ | 64,192 | ||||||||||||
Accrued payroll and employee benefits (Note 4) | 10,809 | 10,101 | 10,061 | 15,215 | 10,809 | 10,101 | ||||||||||||||||||
Accrued liabilities | 8,336 | 5,991 | 5,336 | 7,801 | 8,336 | 5,991 | ||||||||||||||||||
Current and deferred income taxes (Note 6) | 4,852 | 4,351 | 703 | 4,349 | 4,852 | 4,351 | ||||||||||||||||||
Current portion of long-term debt (Note 10) | 8,248 | 3,546 | 2,664 | 11,607 | 8,248 | 3,546 | ||||||||||||||||||
Current liabilities–discontinued subsidiary | — | — | 4,118 | |||||||||||||||||||||
Total current liabilities | 99,846 | 88,181 | 70,706 | 132,314 | 99,846 | 88,181 | ||||||||||||||||||
Long-term debt, less current portion (Note 10) | 100,034 | 108,801 | 117,047 | 89,771 | 100,034 | 108,801 | ||||||||||||||||||
Long-term debt–discontinued subsidiary | — | — | 141 | |||||||||||||||||||||
Deferred income taxes (Note 6) | 13,963 | 21,101 | 18,914 | 19,668 | 13,963 | 21,101 | ||||||||||||||||||
Deferred gain on sale of assets | 7,304 | 6,465 | 7,304 | — | ||||||||||||||||||||
Minority interest | 1,456 | 1,352 | 1,236 | 1,644 | 1,456 | 1,352 | ||||||||||||||||||
Post-retirement benefit obligations (Note 4) | 2,683 | 2,236 | 2,137 | |||||||||||||||||||||
Post retirement benefits obligations (Note 4) | 2,905 | 2,683 | 2,236 | |||||||||||||||||||||
Commitments and contingencies | — | — | — | — | — | — | ||||||||||||||||||
Stockholders’ equity (Notes 11 and 12) | ||||||||||||||||||||||||
Preferred stock – no par — 10,000,000 shares authorized; 12,000 shares issued and outstanding | 11,239 | 11,239 | — | |||||||||||||||||||||
Common stock, $0.01 par value – authorized 30,000,000 shares; issued and outstanding 15,796,439 in 2003, 15,799,126 in 2002 and 14,160,564 in 2001 | 159 | 158 | 142 | |||||||||||||||||||||
Preferred stock, no par value - 10,000,000 shares authorized; 12,000 shares issued and outstanding | 11,239 | 11,239 | 11,239 | |||||||||||||||||||||
Common stock, $0.01 par value - authorized 30,000,000 shares; issued and outstanding 15,806,366 in 2004, 15,796,439 in 2003, 15,799,126 in 2002 | 159 | 159 | 158 | |||||||||||||||||||||
Additional paid in capital | 35,009 | 35,017 | 27,483 | 35,082 | 35,009 | 35,017 | ||||||||||||||||||
Earnings reinvested in the business | 66,480 | 85,490 | 95,644 | 82,400 | 66,480 | 85,490 | ||||||||||||||||||
Accumulated other comprehensive income/(loss) | 1,042 | (555 | ) | (1,475 | ) | |||||||||||||||||||
Other — deferred compensation | (30 | ) | (195 | ) | (401 | ) | ||||||||||||||||||
Treasury stock, at cost – 43,686 shares in 2003, 41,001 shares in 2002 and 742,191 shares in 2001 | (245 | ) | (230 | ) | (4,159 | ) | ||||||||||||||||||
Accumulated other comprehensive income (loss) | 1,616 | 1,042 | (555 | ) | ||||||||||||||||||||
Other - deferred compensation | (2 | ) | (30 | ) | (195 | ) | ||||||||||||||||||
Treasury stock, at cost - 62,065 shares in 2004, 43,686 shares in 2003 and 41,001 shares in 2002 | (245 | ) | (245 | ) | (230 | ) | ||||||||||||||||||
Total stockholders equity | 113,654 | 130,924 | 117,234 | |||||||||||||||||||||
Total stockholders’ equity | 130,249 | 113,654 | 130,924 | |||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 338,940 | $ | 352,595 | $ | 327,415 | $ | 383,016 | $ | 338,940 | $ | 352,595 | ||||||||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
19
Consolidated Statements of Cash Flow
Years Ended December 31, | ||||||||||||||||||||||||
(Dollars in thousands | 2003 | 2002 | 2001 | |||||||||||||||||||||
Cash flows from operating activities | ||||||||||||||||||||||||
Net loss | $ | (18,049 | ) | $ | (10,051 | ) | $ | (5,050 | ) | |||||||||||||||
Net loss (income) from discontinued operations | 172 | 778 | (327 | ) | ||||||||||||||||||||
Adjustments to reconcile net loss to net cash from operating activities | ||||||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||||||
(Dollars in thousands) | 2004 | 2003 | 2002 | |||||||||||||||||||||
Cash flows from operating activities: | �� | |||||||||||||||||||||||
Net income (loss) | $ | 16,877 | $ | (18,049 | ) | $ | (10,051 | ) | ||||||||||||||||
Net loss from discontinued operations | — | 172 | 778 | |||||||||||||||||||||
Adjustments to reconcile net income to net cash from operating activities: | ||||||||||||||||||||||||
Depreciation and amortization | 8,839 | 8,895 | 8,961 | 8,751 | 8,839 | 8,895 | ||||||||||||||||||
Amortization of deferred gain | (593 | ) | — | — | (839 | ) | (593 | ) | — | |||||||||||||||
Loss (gain) on sale of facilities/equipment | 375 | (624 | ) | 44 | 701 | 376 | (624 | ) | ||||||||||||||||
Equity in (earnings) loss of joint ventures | (137 | ) | (446 | ) | 586 | |||||||||||||||||||
Equity in (earnings) loss from joint ventures | (5,199 | ) | (137 | ) | (446 | ) | ||||||||||||||||||
Deferred tax provision | (7,229 | ) | 5,878 | 3,900 | 7,768 | (6,020 | ) | 4,291 | ||||||||||||||||
Increase in pension and other assets | (2,944 | ) | (5,597 | ) | (1,825 | ) | (741 | ) | (2,944 | ) | (5,597 | ) | ||||||||||||
Non-cash pension income | (1,953 | ) | (2,988 | ) | (2,894 | ) | ||||||||||||||||||
Non-cash pension expense (income) | 421 | (1,953 | ) | (2,988 | ) | |||||||||||||||||||
Increase in post-retirement benefit obligations and other | 606 | 444 | 281 | 249 | 606 | 444 | ||||||||||||||||||
Increase in minority interest | 104 | 116 | 265 | 188 | 104 | 116 | ||||||||||||||||||
Asset and joint venture impairment | 11,333 | — | — | — | 11,333 | — | ||||||||||||||||||
Sale of accounts receivable, net | (12,866 | ) | (14,134 | ) | 40,000 | 3,500 | (12,866 | ) | (14,134 | ) | ||||||||||||||
Increase (decrease) from changes in: | ||||||||||||||||||||||||
Accounts receivable | (5,961 | ) | 4,545 | 25,107 | (27,626 | ) | (5,961 | ) | 4,545 | |||||||||||||||
Inventories | 14,328 | 7,765 | 28,421 | (15,668 | ) | 14,328 | 7,765 | |||||||||||||||||
Other current assets | 9,930 | (6,443 | ) | (26 | ) | (350 | ) | 9,930 | (6,443 | ) | ||||||||||||||
Accounts payable | 2,543 | 7,454 | (34,359 | ) | 24,351 | 2,543 | 7,454 | |||||||||||||||||
Accrued payroll and employee benefits | 708 | 40 | (868 | ) | 4,363 | 708 | 40 | |||||||||||||||||
Income tax payable | 493 | (98 | ) | (4,535 | ) | (2,073 | ) | (716 | ) | 1,489 | ||||||||||||||
Accrued liabilities | (758 | ) | 60 | (1,170 | ) | (1,053 | ) | (758 | ) | 60 | ||||||||||||||
Net cash from operating activities-continuing operations | (1,059 | ) | (4,411 | ) | 56,511 | |||||||||||||||||||
Net cash from operating activities-discontinued operations | — | (1,194 | ) | 3,055 | ||||||||||||||||||||
Net cash from operating activities — continuing operations | 13,621 | (1,059 | ) | (4,406 | ) | |||||||||||||||||||
Net cash from operating activities — discontinued operations | — | — | (1,194 | ) | ||||||||||||||||||||
13,621 | (1,059 | ) | (5,600 | ) | ||||||||||||||||||||
(1,059 | ) | (5,600 | ) | 59,566 | ||||||||||||||||||||
Cash flows from investing activities: | ||||||||||||||||||||||||
Investments and acquisitions | — | (842 | ) | — | (1,744 | ) | — | (842 | ) | |||||||||||||||
Proceeds from disposition of subsidiary | — | 2,486 | — | — | — | 2,486 | ||||||||||||||||||
Advances to and investments in joint ventures | (289 | ) | (1,882 | ) | (3,477 | ) | 2,228 | (289 | ) | (1,882 | ) | |||||||||||||
Proceeds from sale of facilities/equipment | 14,002 | 2,844 | 2,539 | — | 14,002 | 2,844 | ||||||||||||||||||
Capital expenditures | (5,145 | ) | (1,446 | ) | (6,806 | ) | (5,318 | ) | (5,145 | ) | (1,446 | ) | ||||||||||||
Net cash from investing activities – continuing operations | 8,568 | 1,160 | (7,744 | ) | ||||||||||||||||||||
Net cash from investing activities – discontinued operations | — | 98 | (559 | ) | ||||||||||||||||||||
Net cash from investing activities — continuing operations | (4,834 | ) | 8,568 | 1,160 | ||||||||||||||||||||
Net cash from investing activities — discontinued operations | — | — | 98 | |||||||||||||||||||||
(4,834 | ) | 8,568 | 1,258 | |||||||||||||||||||||
8,568 | 1,258 | (8,303 | ) | |||||||||||||||||||||
Cash flows from financing activities | ||||||||||||||||||||||||
Proceeds for issuance of long-term debt | 1,455 | — | — | — | 1,455 | — | ||||||||||||||||||
Repayment of long-term debt | (6,637 | ) | (8,166 | ) | (39,902 | ) | (7,452 | ) | (6,637 | ) | (8,166 | ) | ||||||||||||
Dividends paid | — | — | (7,009 | ) | ||||||||||||||||||||
Preferred stock | (961 | ) | (103 | ) | — | |||||||||||||||||||
Proceeds from preferred stock issuance | — | 11,239 | — | |||||||||||||||||||||
Effect of exchange rate changes on cash | 171 | 54 | (20 | ) | ||||||||||||||||||||
Preferred stock dividend | (957 | ) | (961 | ) | (103 | ) | ||||||||||||||||||
Proceeds from preferred stock | — | — | 11,239 | |||||||||||||||||||||
Other | — | (502 | ) | (294 | ) | — | — | (502 | ) | |||||||||||||||
Net cash from financing activities – continuing operations | (5,972 | ) | 2,522 | (47,225 | ) | |||||||||||||||||||
Net cash from financing activities – discontinued operations | — | 937 | (3,996 | ) | ||||||||||||||||||||
Net cash from financing activities — continuing operations | (8,409 | ) | (6,143 | ) | 2,468 | |||||||||||||||||||
Net cash from financing activities — discontinued operations | — | — | 937 | |||||||||||||||||||||
(8,409 | ) | (6,143 | ) | 3,405 | ||||||||||||||||||||
Effect of exchange rate changes on cash | 273 | 171 | 54 | |||||||||||||||||||||
(5,972 | ) | 3,459 | (51,221 | ) | ||||||||||||||||||||
Net increase (decrease) in cash | 1,537 | (883 | ) | 42 | 651 | 1,537 | (883 | ) | ||||||||||||||||
Cash — beginning of year | 918 | 1,801 | 1,759 | 2,455 | 918 | 1,801 | ||||||||||||||||||
Cash — end of year | $ | 2,455 | $ | 918 | $ | 1,801 | $ | 3,106 | $ | 2,455 | $ | 918 | ||||||||||||
The accompanying notes to consolidated financial statements are an integral part of these statements.
20
Supplemental Disclosure of
Consolidated Cash Flow Statements
Years Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||
(Dollars in thousands) | 2003 | 2002 | 2001 | 2004 | 2003 | 2002 | ||||||||||||||||||
Supplemental disclosures of cash flow information | ||||||||||||||||||||||||
Cash paid (received) during the year for— | ||||||||||||||||||||||||
Interest | $ | 9,740 | $ | 7,399 | $ | 9,751 | $ | 8,910 | $ | 9,740 | $ | 7,399 | ||||||||||||
Income taxes | $ | (12,653 | ) | $ | (6,320 | ) | $ | (2,513 | ) | $ | 6,331 | $ | (12,653 | ) | $ | (6,320 | ) | |||||||
Consolidated Statements of Stockholders’ Equity
Capital | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Received | Accumulated | Capital | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Common | Treasury | in Excess | Other | Received | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Shares | Preferred | Common | Treasury | of Par | Retained | Deferred | Comprehensive | in Excess | Other | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(000) | (000) | Stock | Stock | Stock | Value | Earnings | Comp. | Loss | Total | Preferred | Common | Treasury | of Par | Retained | Deferred | Comprehensive | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2001 | 14,903 | (742 | ) | $ | — | $ | 27,625 | $ | (4,159 | ) | $ | — | $ | 107,703 | $ | (805 | ) | $ | (1,123 | ) | $ | 129,241 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock | Stock | Stock | Value | Earnings | Compensation | Loss | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2002 | $ | — | $ | 142 | $ | (4,159 | ) | $ | 27,483 | $ | 95,644 | $ | (401 | ) | $ | (1,475 | ) | $ | 117,234 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Loss: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | (5,050 | ) | (5,050 | ) | (10,051 | ) | (10,051 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | (378 | ) | (378 | ) | 621 | 621 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension liability adjustment (net of income tax of $17) | 26 | 26 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive loss | (5,402 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cash dividends paid | (7,009 | ) | (7,009 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuances | (27,483 | ) | 27,483 | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 404 | 404 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2001 | 14,903 | (742 | ) | — | 142 | (4,159 | ) | 27,483 | 95,644 | (401 | ) | (1,475 | ) | 117,234 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | (10,051 | ) | (10,051 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | 621 | 621 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension liability adjustment (net of income tax of $198) | 299 | 299 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension liability adjustment(net of income tax of $199) | 299 | 299 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive loss | (9,131 | ) | (9,430 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuances | 11,239 | 11,239 | 11,239 | 11,239 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred dividends | (103 | ) | (103 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Dividends | (103 | ) | (103 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Contribution to pension plan | 937 | 685 | 16 | 3,839 | 7,485 | 11,340 | 16 | 3,839 | 7,485 | 11,340 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 16 | 90 | 49 | 206 | 345 | 90 | 49 | 206 | 345 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2002 | 15,840 | (41 | ) | 11,239 | 158 | (230 | ) | 35,017 | 85,490 | (195 | ) | (555 | ) | 130,924 | 11,239 | 158 | (230 | ) | 35,017 | 85,490 | (195 | ) | (555 | ) | 130,924 | |||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Loss | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Loss: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | (18,049 | ) | (18,049 | ) | (18,049 | ) | (18,049 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | 1,691 | 1,691 | 1,691 | 1,691 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension liability adjustment (net of income tax of $63) | (94 | ) | (94 | ) | (94 | ) | (94 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive loss | (16,452 | ) | (16,358 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Dividends | (961 | ) | (961 | ) | (961 | ) | (961 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | (3 | ) | 1 | (15 | ) | (8 | ) | 165 | 143 | 1 | (15 | ) | (8 | ) | 165 | 143 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2003 | 15,840 | (44 | ) | $ | 11,239 | $ | 159 | $ | (245 | ) | $ | 35,009 | $ | 66,480 | $ | (30 | ) | $ | 1,042 | $ | 113,654 | 11,239 | 159 | (245 | ) | 35,009 | 66,480 | (30 | ) | 1,042 | 113,654 | |||||||||||||||||||||||||||||||||||||||||
Comprehensive Loss: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income | 16,877 | 16,877 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign currency translation | 1,009 | 1,009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension liability adjustment(net of income tax of $287) | (435 | ) | (435 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total comprehensive loss | 17,451 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Dividends | (957 | ) | (957 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other | 73 | 28 | 101 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2004 | $ | 11,239 | $ | 159 | $ | (245 | ) | $ | 35,082 | $ | 82,400 | $ | (2 | ) | $ | 1,616 | $ | 130,249 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
21
A. M. Castle & Co.
Notes to Consolidated Financial Statements
(1) Principal accounting policies and business description
Nature of operations—A. M. Castle & Co. (the “Company”) is an industrial distributor of specialty metals including carbon, alloy, and stainless steels; nickel alloys; aluminum; and copper and brass throughout the United States, Canada and Mexico. Its customer base includes many Fortune 500 companies as well as thousands of medium and smaller sized firms in various industries primarily within the producer durable equipment sector. The Company also distributes industrial plastics through its subsidiary, Total Plastics, Inc.
Basis of presentation—The consolidated financial statements include the accounts of A. M. Castle & Co. and its subsidiaries over which the Company exhibits a controlling interest. The equity method of accounting is used for entities in which the Company has a significant influence. Generally this represents common stock ownership or partnership equity of at least 20% and not more than 50%. All inter-company accounts and transactions have been eliminated.
Use of estimates—The financial statements have been prepared in accordance with generally accepted accounting principles which necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts.
Revenue Recognition—Revenue from product sales is largely recognized upon shipment whereupon title passes and the Company has no further obligations to the customer. The Company has entered into consignment inventory agreements with a few select customers whereby revenue is not recorded until the customer has consumed product from the consigned inventory and title has passed. Provisions for discounts and rebates to customers, and returns and other adjustments are provided for in the same period the related sales are recorded. Shipping and handling expenses are recorded as operating expense in the period incurred. These amounts were $24.4 million, $20.6 million and $21.1 million for 2004, 2003 and $23.1 million for 2003, 2002 and 2001 respectively.
Cash and equivalents—For the purposes of these statements, short-term investments that have an original maturity of 90 days or less are considered cash equivalents.
Inventories—Substantially allNinety-two percent of the Company’s inventories are stated at the lower of last-in, first-out (LIFO) cost or market. The Company values its LIFO increments using the costs of its latest purchases during the years reported.
Property, plant and equipment—Property, plant and equipment are stated at cost and include assets held under capitalized leases. Major renewals and betterments are capitalized, while maintenance and repairs that do not substantially improve or extend the useful lives of the respective assets are expensed currently. When properties are disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income.
The Company provides for depreciation of plant and equipment by charging against income amounts sufficient to amortize the cost of properties over their estimated useful lives (buildings-12 to 40 years; machinery and equipment-5 to 20 years). Depreciation is provided using the straight-line method for financial reporting purposes and accelerated methods for tax purposes.
Income taxes—Income tax provisions are based on income reported for financial statement purposes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for reporting purposes and the amounts used for income tax purposes. The Company records valuation allowances against its deferred taxes when it is more likely than not that the amounts will not be realized.
22
Retirement plan costs—The Company accrues and funds its retirement plans based on amounts, as determined by an independent actuary, necessary to maintain the plans on an actuarially sound basis. The
22
Company also provides certain health care and life insurance benefits for retired employees. The cost of these benefits is recognized in the financial statements during the employee’s active working career.
Foreign Currency Translation—For all non-U.S. operations, the functional currency is the local currency. Assets and liabilities of those operations are translated into U.S. dollars using year-end exchange rates, income and expenses are translated using the average exchange rates for the reporting period. Translation adjustments are deferred in accumulated other comprehensive income (loss), a separate component of stockholder’s equity. Gains or losses resulting from foreign currency transactions were not material in 2004, 2003, or 2002.
Long-Lived Assets and Long-Lived Assets to Be Disposed Of— The Company’s long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Earnings per share —Earnings per common share are computed by dividing net income (loss) by the weighted average number of shares of common stock (basic) plus common stock equivalents (diluted) outstanding during the year. Common stock equivalents consist of stock options, restricted stock awards and preferred stock shares and have been included in the calculation of weighted average shares outstanding using the treasury stock method. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128 “Earnings per share”, the following table is a reconciliation of the basic and fully diluted earnings per share calculations for the periods reported.(dollars and shares in thousands)
2003 | 2002 | 2001 | ||||||||||
Net loss from continuing operations | $ | (17,877 | ) | $ | (9,273 | ) | $ | (5,377 | ) | |||
Net (loss) income from discontinued operations | (172 | ) | (778 | ) | 327 | |||||||
Net loss | (18,049 | ) | (10,051 | ) | (5,050 | ) | ||||||
Preferred dividends | (961 | ) | (103 | ) | — | |||||||
Net loss applicable to common stock | $ | (19,010 | ) | $ | (10,154 | ) | $ | (5,050 | ) | |||
Weighted average common shares outstanding | 15,780 | 14,916 | 14,094 | |||||||||
Dilutive effect of outstanding employee and directors’ common stock options and preferred stock | — | — | — | |||||||||
Diluted common shares outstanding | 15,780 | 14,916 | 14,094 | |||||||||
Basic and diluted (loss) earnings per share: | ||||||||||||
Net loss from continuing operations | $ | (1.19) | * | $ | (0.63) | * | $ | (0.38 | ) | |||
Net (loss) earnings from discontinued operations | (0.01 | ) | (0.05 | ) | 0.02 | |||||||
Net loss per share | $ | (1.20 | ) | $ | (0.68 | ) | $ | (0.36 | ) | |||
Outstanding employee and directors’ common stock options and restricted and preferred stock shares having no dilutive effect | 3,877 | 3,722 | 1,681 | |||||||||
2004 | 2003 | 2002 | ||||||||||
Net income (loss) from continuing operations | $ | 16,877 | $ | (17,877 | ) | $ | (9,273 | ) | ||||
Net income (loss) from discontinued operations | — | (172 | ) | (778 | ) | |||||||
Net income (loss) | 16,877 | (18,049 | ) | (10,051 | ) | |||||||
Preferred dividends | (957 | ) | (961 | ) | (103 | ) | ||||||
Net income (loss) applicable to common stock | $ | 15,920 | $ | (19,010 | ) | $ | (10,154 | ) | ||||
Weighted average common shares outstanding | 15,795 | 15,780 | 14,916 | |||||||||
Dilutive effect of outstanding employee and directors’ common stock options and preferred stock | 930 | — | — | |||||||||
Diluted common shares outstanding | 16,725 | 15,780 | 14,916 | |||||||||
Basic earnings (loss) per share | ||||||||||||
Net earnings (loss) from continuing operations | $ | 1.01 | * | $ | (1.19) | * | $ | (0.63) | * | |||
Net earnings (loss) from discontinued operations | — | (0.01 | ) | (0.05 | ) | |||||||
Net income (loss) per share | $ | 1.01 | $ | (1.20 | ) | $ | (0.68 | ) | ||||
Diluted earnings (loss) per share | ||||||||||||
Net earnings (loss) from continuing operations | $ | 1.01 | * | $ | (1.19) | * | $ | (0.63) | * | |||
Net earnings (loss) from discontinued operations | — | (0.01 | ) | (0.05 | ) | |||||||
Net income (loss) per share | $ | 1.01 | $ | (1.20 | ) | $ | (0.68 | ) | ||||
Outstanding employee and directors’ common stock options and restricted and preferred stock shares having no dilutive effect | 3,674 | 3,877 | 3,722 | |||||||||
*LossIncome (loss) includes net lossincome (loss) from continuing operations and preferred dividends.dividend
23
Goodwill—In July 2001 the Financial Accounting Standards Board (FASB) issued SFAS No. 142 “Goodwill and Other Intangible Assets”. The Company adopted this accounting standard effective January 1, 2002. As a result of the decision to sell one of its business units, $0.4 million of goodwill was sold in 2003. The Company performs an annual impairment test on Goodwill and other intangible assets during the first quarter of each fiscal year. No impairment was recorded during 2003.2004.
The changes in carrying amounts of goodwill were as follows:
Metals Segment | Plastics Segment | Total | ||||||||||
Balance as of December 31, 2002 | $ | 18,974 | $ | 12,973 | $ | 31,947 | ||||||
Sold | (414 | ) | — | (414 | ) | |||||||
Currency Valuation | 110 | — | 110 | |||||||||
Balance as of December 31, 2003 | $ | 18,670 | $ | 12,973 | $ | 31,643 | ||||||
The following is a reconciliation of net income and earnings per share between the amounts reported in 2001 and the adjusted amounts as if this standard had been effective.
2001 | ||||
Net loss from continuing operations: | ||||
As reported | $ | (5,377 | ) | |
Goodwill amortization, net of tax | 699 | |||
Adjusted net loss | $ | (4,678 | ) | |
Loss per share (basic and diluted): | ||||
As reported | $ | (0.38 | ) | |
Goodwill amortization | 0.05 | |||
Adjusted net loss per share | $ | (0.33 | ) | |
Net loss from continuing and discontinued operations: | ||||
As reported | $ | (5,050 | ) | |
Goodwill amortization | 740 | |||
Adjusted net loss | $ | (4,310 | ) | |
Loss per share (basic and diluted) | ||||
As reported | $ | (0.36 | ) | |
Goodwill amortization | 0.05 | |||
Adjusted net loss per share | $ | (0.31 | ) | |
Metals Segment | Plastics Segment | Total | ||||||||||
Balance as of December 31, 2002 | $ | 18,974 | $ | 12,973 | $ | 31,947 | ||||||
Sold | (414 | ) | — | (414 | ) | |||||||
Currency Valuation | 110 | — | 110 | |||||||||
Balance as of December 31, 2003 | 18,670 | 12,973 | 31,643 | |||||||||
Purchased | 510 | — | 510 | |||||||||
Currency Valuation | 48 | — | 48 | |||||||||
Balance as of December 31, 2004 | $ | 19,228 | $ | 12,973 | $ | 32,201 | ||||||
Concentrations—The Company serves a wide range of industrial companies within the producer durable equipment sector of the economy from locations throughout the United States and Canada. Its customer base includes many Fortune 500 companies as well as thousands of medium and smaller sized firms’ spread across the entire spectrum of metals using industries. The Company’s customer base is well diversified with no single industry accounting for more than 5% of the Company’s total business and no one customer more than 4%3%. Approximately 93% of the Company’s business is conducted in the United States with the remainder of the sales being made in Canada.Canada and Mexico.
New Accounting Standards—Standards —During 2002,In December 2004 the FASBFinancial Accounting Standards Board (FASB) issued a revised Statement of Financial Accounting Standards (SFAS) No. 123, “Share Based Payment”. The revised SFAS No. 148 “Accounting for Stock-Based Compensation – Transition and Disclosure”. The statement allows for the Company’s current method of accounting for stock options to continue. Effective for interim periods beginning after December 15, 2002, disclosure is required for information on123 requires that the fair value of stock options andbe recorded in the results of operations beginning no later than July 1, 2005. The effect of adopting the new rule on reported diluted earnings per share (in tabular form).is dependent on the number of options granted in the future; the terms of those awards and their fair values. The Company expects to adopt the revised rules on July 1, 2005, but has complied with this pronouncement beginning in 2003.not determined whether it would adopt prospectively, or retrospectively to January 1, 2005.
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In May 2003, the FASB issued SFAS No. 150 – “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This Statement provides guidance as to the appropriate classification of certain financial statement instruments that have characteristics of both liabilities and equity. This Statement was effective at the beginning of the first interim period after June 15, 2003. Adoption of this Statement has not had an impact on the Company’s financial position or results of operations.
On November 25, 2002, the FASB issued Interpretation No 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees”, Including Indirect Guarantees of Indebtedness to Others, which elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Interpretation expands on the accounting guidance of Interpretation No. 5, Accounting for Contingencies, SFAS No. 57 Related Party Disclosures, and SFAS No. 107, Disclosures about Fair Value of Financial Instruments. The Interpretation also incorporates, without change, the provisions of Interpretation No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others, which it supersedes. The Interpretation does identify several situations where the recognition of a liability at inception for a guarantor’s obligation is not required. The initial recognition and measurement provisions of this Interpretation apply on a prospective basis to guarantees issued or modified after December 31, 2002, regardless of the guarantor’s fiscal year-end. The disclosures are effective for financial statements of interim or annual periods ending after December 31, 2002. Adoption of this Interpretation did not have an impact on financial statements and related disclosures.
In March 2003, the FASB issued Interpretation No. 46. This Interpretation of Accounting Research Bulletin No. 5, Consolidated“Consolidated Financial Statements,Statements”, addresses consolidation by business enterprises of variable interest entities. This Interpretation applies to variable interest entities created after January 1, 2002, and to variable interest entities in which an enterprise obtains an interest after that date. The Company has no investments in or known contractual arrangements with variable interest entities and therefore, this Interpretation has no impact on the Company’s financial statements and related disclosures.
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(2) Segment Reporting
The Company distributes and performs first stage processing on both metals and plastics. Although the distribution process is similar, different products are offered and different customers are served by each of these businesses and, therefore, they are considered segments according to SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information”.
The accounting policies of all segments are as described in the summary of significant accounting policies. Management evaluates performance of its business segments based on operating income. The Company does not maintain separate financial statements prepared in accordance with generally accepted accounting principles for each of its operating segments.
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The following is the segment information for the years ended December 31, 2004, 2003 2002 and 2001:2002:
Net | Gross | Other | Operating | Total | ||||||||||||||||||||||||||||||||||||
Sales | Mat’l Margin | Oper Exp | (Loss) Income | Assets | Net | Gross | Other | Operating | Total | |||||||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||||||||||
Metals Segment | $ | 475,302 | $ | 133,512 | $ | (147,548 | ) | $ | (14,036 | ) | $ | 306,892 | ||||||||||||||||||||||||||||
Plastics Segment | 67,729 | 23,436 | (20,587 | ) | 2,849 | 31,388 | ||||||||||||||||||||||||||||||||||
Sales | Mat’l Margin | Oper Exp | Income (Loss) | Assets | ||||||||||||||||||||||||||||||||||||
2004 | ||||||||||||||||||||||||||||||||||||||||
Metals segment | $ | 671,161 | $ | 188,422 | $ | (155,370 | ) | $ | 33,052 | $ | 338,558 | |||||||||||||||||||||||||||||
Plastics segment | 89,836 | 29,149 | (23,603 | ) | 5,546 | 44,289 | ||||||||||||||||||||||||||||||||||
Other | — | — | (2,554 | ) | (2,554 | ) | 660 | — | — | (4,993 | ) | (4,993 | ) | 169 | ||||||||||||||||||||||||||
Consolidated | $ | 543,031 | $ | 156,948 | $ | (170,689 | ) | $ | (13,741 | ) | $ | 338,940 | $ | 760,997 | $ | 217,571 | $ | (183,966 | ) | $ | 33,605 | $ | 383,016 | |||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||
Metals Segment | $ | 477,695 | $ | 138,955 | $ | (142,847 | ) | $ | (3,892 | ) | $ | 312,223 | ||||||||||||||||||||||||||||
Plastics Segment | 60,448 | 21,191 | (18,823 | ) | 2,368 | 30,475 | ||||||||||||||||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||||||||||||||
Metals segment | $ | 475,302 | $ | 133,512 | $ | (147,548 | ) | $ | (14,036 | ) | $ | 306,892 | ||||||||||||||||||||||||||||
Plastics segment | 67,729 | 23,436 | (20,587 | ) | 2,849 | 31,388 | ||||||||||||||||||||||||||||||||||
Other | — | — | (2,847 | ) | (2,847 | ) | 9,897 | — | — | (2,554 | ) | (2,554 | ) | 660 | ||||||||||||||||||||||||||
Consolidated | $ | 538,143 | $ | 160,146 | $ | (164,517 | ) | $ | (4,371 | ) | $ | 352,595 | $ | 543,031 | $ | 156,948 | $ | (170,689 | ) | $ | (13,741 | ) | $ | 338,940 | ||||||||||||||||
2001 | ||||||||||||||||||||||||||||||||||||||||
Metals Segment | $ | 538,321 | $ | 156,169 | $ | (151,020 | ) | $ | 5,149 | $ | 281,870 | |||||||||||||||||||||||||||||
Plastics Segment | 54,971 | 20,010 | (19,051 | ) | 959 | 28,854 | ||||||||||||||||||||||||||||||||||
2002 | ||||||||||||||||||||||||||||||||||||||||
Metals segment | $ | 477,695 | $ | 138,955 | $ | (142,847 | ) | $ | (3,892 | ) | $ | 312,223 | ||||||||||||||||||||||||||||
Plastics segment | 60,448 | 21,191 | (18,823 | ) | 2,368 | 30,475 | �� | |||||||||||||||||||||||||||||||||
Other | — | (3,265 | ) | (3,265 | ) | 5,120 | — | — | (2,847 | ) | (2,847 | ) | 9,897 | |||||||||||||||||||||||||||
Discontinued operation | — | — | — | — | 11,571 | |||||||||||||||||||||||||||||||||||
Consolidated | $ | 593,292 | $ | 176,179 | $ | (173,336 | ) | $ | 2,843 | $ | 327,415 | $ | 538,143 | $ | 160,146 | $ | (164,517 | ) | $ | (4,371 | ) | $ | 352,595 | |||||||||||||||||
“Other” – Operating loss includes the costs of executive and legal departments, which are, shared by both the metals and plastics segments. The segments total assets consist solely of the Company’s income tax receivable (the Company files a consolidated income tax return).
(3) Lease Agreements
The Company has operating leases covering certain warehouse facilities, equipment, automobiles and trucks, with lapse of time as the basis for all rental payments plus a mileage factor included in the truck rentals.
Future minimum rental payments under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2003,2004, are as follows(in thousands):
Year ending December 31, | |||||||||
2004 | $ | 10,366 | |||||||
2005 | 9,545 | $ | 12,305 | ||||||
2006 | 8,509 | 11,803 | |||||||
2007 | 6,918 | 10,038 | |||||||
2008 | 5,890 | 8,969 | |||||||
2009 | 6,993 | ||||||||
Later years | 14,519 | 13,763 | |||||||
Total minimum payments required | $ | 55,747 | 63,871 | ||||||
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Total rental payments charged to expense were $12.8 million in 2004, $15.6 million in 2003 and $16.8 million in 2002 and $14.0 million in 2001.2002.
In July 2003, the Company sold its Los Angeles land and building for $10.5 million. Under the agreement, the Company has a ten yearten-year lease for 59% of the property and a short-term lease expiringthat expired in NovemberMay, 2004 for 41% of the space which is not available for use. In October 2003, the Company also sold its Kansas City land and building for $3.4 million and is leasing back approximately 68% of the property from the purchaser for ten years. These transactions are being accounted for as operating leases. The two transactions generated a total net gain of $8.5 million, which has been deferred and is being amortized to income ratably over the term of leases. At December 31, 2003,2004, the remaining deferred gain of $7.3$6.5 million iswas shown as “Deferred gain on sale of assets” with an additional $0.8$0.9 million included in “Accrued liabilities” in the CondensedConsolidated Balance Sheets. The lease requires the Company to pay customary
26
operating and repair expenses and contains renewal options. For the year ended December 31, 2003,2004, the total rental expense was $0.3$0.4 million.
During 2002 and 2001 the Company sold and leased back equipment under operating leaseslease with termsa term of six and five years, respectively.years. The assets sold at approximately net book value for proceeds of $2.0 million and $2.5 million. The leases allowlease allows for a purchase option of $0.6 million in 2002 and $0.9 million in 2001.2007. Annual rentals arerent is $0.3 million and $0.6 million for assets sold in 2002 and 2001, respectively. These leases are2002. This lease is recorded as operating leases in accordance with the criteria set forth in SFAS No. 13 “Accounting For Leases”.
(4) Retirement, Profit Sharing and Incentive Plans
Substantially all employees who meet certain requirements of age, length of service and hours worked per year are covered by Company-sponsored retirement plans. These retirement plans are defined benefit, noncontributory plans. Benefits paid to retirees are based upon age at retirement, years of credited service and average earnings.
The assets of the Company-sponsored plans are maintained in a single trust account. The majority of the trust assets are invested in common stock mutual funds, insurance contracts, real estate funds and corporate bonds. The Company’s funding policy is to satisfy the minimum funding requirements of ERISA.
Components of net pension benefit cost for 2004, 2003 and 2002 and 2001 (in(in thousands):
2004 | 2003 | 2002 | |||||||||||||||||||||||
2003 | 2002 | 2001 | |||||||||||||||||||||||
Service cost | $ | 2,040 | $ | 1,889 | $ | 1,726 | $ | 2,377 | $ | 2,040 | $ | 1,889 | |||||||||||||
Interest Cost | 5,813 | 5,689 | 5,549 | ||||||||||||||||||||||
Interest cost | 5,792 | 5,813 | 5,689 | ||||||||||||||||||||||
Expected return on assets | (9,769 | ) | (10,351 | ) | (9,691 | ) | (9,587 | ) | (9,769 | ) | (10,351 | ) | |||||||||||||
Amortization of prior service cost | 67 | 67 | 57 | 68 | 67 | 67 | |||||||||||||||||||
Amortization of actuarial loss (gain) | 204 | — | (81 | ) | 1,465 | 204 | — | ||||||||||||||||||
Net periodic benefit | $ | (1,645 | ) | $ | (2,706 | ) | $ | (2,440 | ) | ||||||||||||||||
Net periodic cost (benefit) | $ | 115 | $ | (1,645 | ) | $ | (2,706 | ) | |||||||||||||||||
2726
Status of the plans at December 31, 2004, 2003 2002 and 20012002 was as follows(in thousands):
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||
Change in projected benefit obligation | ||||||||||||||||||||||||
Benefit obligation at beginning of year | $ | 86,488 | $ | 78,811 | $ | 72,298 | $ | 99,008 | $ | 86,488 | $ | 78,811 | ||||||||||||
Service cost | 2,040 | 1,889 | 1,726 | 2,377 | 2,040 | 1,889 | ||||||||||||||||||
Interest cost | 5,813 | 5,689 | 5,549 | 5,792 | 5,813 | 5,689 | ||||||||||||||||||
Benefit payments | (4,911 | ) | (4,660 | ) | (4,457 | ) | (5,110 | ) | (4,911 | ) | (4,660 | ) | ||||||||||||
Actuarial loss | 9,578 | 4,760 | 2,852 | 8,260 | 9,578 | 4,760 | ||||||||||||||||||
Plan amendments | — | (1 | ) | 843 | — | — | (1 | ) | ||||||||||||||||
Projected benefit obligation at end of year | $ | 99,008 | $ | 86,488 | $ | 78,811 | $ | 110,327 | $ | 99,008 | $ | 86,488 | ||||||||||||
Change in plan assets: | ||||||||||||||||||||||||
Fair value of assets at beginning of year | $ | 77,225 | $ | 84,470 | $ | 95,268 | $ | 92,182 | $ | 77,225 | $ | 84,470 | ||||||||||||
Actual return (loss) on assets | 19,526 | (16,269 | ) | (6,594 | ) | 16,418 | 19,526 | (16,269 | ) | |||||||||||||||
Employer contributions | 341 | 13,684 | 253 | 341 | 341 | 13,684 | ||||||||||||||||||
Benefit payments | (4,910 | ) | (4,660 | ) | (4,457 | ) | (5,110 | ) | (4,910 | ) | (4,660 | ) | ||||||||||||
Fair value of plan assets at year-end | $ | 92,182 | $ | 77,225 | $ | 84,470 | $ | 103,831 | $ | 92,182 | $ | 77,225 | ||||||||||||
Reconciliation of funded status: | ||||||||||||||||||||||||
Funded status | $ | (6,826 | ) | $ | (9,263 | ) | $ | 5,659 | $ | (6,496 | ) | $ | (6,826 | ) | $ | (9,263 | ) | |||||||
Unrecognized prior service cost | 664 | 731 | 799 | 596 | 664 | 731 | ||||||||||||||||||
Unrecognized actuarial loss | 44,965 | 45,349 | 13,970 | 44,929 | 44,965 | 45,349 | ||||||||||||||||||
Net amount recognized | $ | 38,803 | $ | 36,817 | $ | 20,428 | $ | 39,029 | $ | 38,803 | $ | 36,817 | ||||||||||||
Amounts recognized in balance sheet consist of: | ||||||||||||||||||||||||
Prepaid benefit cost | $ | 42,075 | $ | 40,122 | $ | 23,791 | $ | 42,262 | $ | 42,075 | $ | 40,122 | ||||||||||||
Accrued benefit liability | (3,773 | ) | (3,512 | ) | (3,903 | ) | (3,969 | ) | (3,773 | ) | (3,512 | ) | ||||||||||||
Intangible assets | — | — | 34 | — | — | — | ||||||||||||||||||
Accumulated comprehensive income | 501 | 207 | 506 | 736 | 501 | 207 | ||||||||||||||||||
Net amount recognized | $ | 38,803 | $ | 36,817 | $ | 20,428 | $ | 39,029 | $ | 38,803 | $ | 36,817 | ||||||||||||
Accumulated benefit obligations (all plans) | $ | (89,856 | ) | $ | (79,146 | ) | $ | (70,843 | ) | $ | (97,084 | ) | $ | (89,856 | ) | $ | (79,146 | ) | ||||||
Accumulated benefit obligations – Supplemental Pension Plan(Included in total for all plans*) | $ | (3,772 | ) | $ | (3,511 | ) | $ | (3,903 | ) | |||||||||||||||
Accumulated benefit obligations–Supplemental Pension Plan | $ | (3,969 | ) | $ | (3,772 | ) | $ | (3,511 | ) | |||||||||||||||
(included in total for all plans*) | ||||||||||||||||||||||||
*The Company’s Supplemental Pension Plan included in the disclosure table above is a non-qualified unfunded plan. |
The assumptions used to measure the projected benefit obligations, future salary increases, and to compute the expected long-term return on assets for the Company’s defined benefit pension plans are as follows:
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||
Discount rate | 6.00 | % | 6.7 | % | 7.50 | % | 5.75 | % | 6.00 | % | 6.7 | % | ||||||||||||
Projected annual salary increases | 4.00 | 4.75 | 4.75 | 4.00 | 4.00 | 4.75 | ||||||||||||||||||
Expected long-term rate of return on plan assets | �� | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | 9.00 | |||||||||||||||||
Measurement date | 12/31/02 | 12/31/01 | 12/31/00 | 12/31/04 | 12/31/03 | 12/31/02 | ||||||||||||||||||
2827
The assumptions used to determine net periodic pension costs are as follows:
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||
Discount rate | 6.75 | % | 7.50 | % | 8.00 | % | 6.00 | % | 6.75 | % | 7.50 | % | ||||||||||||
Expected long-term rate of return on plan assets | 9.00 | 10.00 | 10.00 | 9.00 | 9.00 | 10.00 | ||||||||||||||||||
Projected annual salary increases | 4.75 | 4.75 | 4.75 | 4.00 | 4.75 | 4.75 | ||||||||||||||||||
Measurement date | 12/31/02 | 12/31/01 | 12/31/00 | 12/31/03 | 12/31/02 | 12/31/01 | ||||||||||||||||||
The assumption on expected long-term rate of return on plan assets was based on a building block approach. The expected long-term rate of inflation and risk premiums for the various asset categories is based on the current investment environment. General historical market returns are used in the development of the long-term expected inflation rates and risk premiums. The target allocations of assets are used to develop a composite rate of return assumption.
The Company’s pension plan weighted average asset allocations at December 31, 2004, 2003, 2002, and 2001,2002, by asset category, are as follows:
2004 | 2003 | 2002 | ||||||||||||||||||
2003 | 2002 | |||||||||||||||||||
Equity securities | 68.8 | % | 53.5 | % | 69.4 | % | 68.8 | % | 53.5 | % | ||||||||||
Company stock | 12.9 | 9.6 | 15.4 | 12.9 | 9.6 | |||||||||||||||
Debt securities | 12.2 | 16.5 | 8.4 | 12.2 | 16.5 | |||||||||||||||
Real estate | 5.9 | 6.5 | 5.9 | 5.9 | 6.5 | |||||||||||||||
Other | 0.2 | 13.9 | 0.9 | 0.2 | 13.9 | |||||||||||||||
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||
The Company’s pension plan funds are managed in accordance with investment policies recommended by its investment advisor and approved by the Board. The overall target portfolio allocation is 75% equities; 15% fixed income; and 10% real estate. Within the equity allocation, the style distribution is 30% value; 30% growth; 15% small cap growth; 15% international; and 10% company stock. With the exception of real estate and the Company stock, the investments are made in mutual funds. These funds’ conformance with style profiles and performance is monitored regularly by the Company’s pension advisor. Adjustments are typically made in the subsequent quarters when investment allocations deviate from target by 5% or more. The investment advisor makes quarterly reports to the Audit Committee and Management and annually reports to the Board.
The Company has profit sharing plans for the benefit of salaried and other eligible employees (including officers). The Company’s profit sharing plans include features under Section 401 of the Internal Revenue Code. The plan includes a provision whereby the Company partially matches employee contributions up to a maximum of 6% of the employees’ salary. The plan also includes a supplemental contribution feature whereby a Company contribution would be made to all eligible employees upon achievement of specific return on investment goals as defined by the plan.
The Company has a management incentive plan for the benefit of its officers and key employees. Incentives are paid to line managers based on performance, against objectives, of their respective operating units. Incentives are paid to corporate officers on the basis of total Company performance against objectives. Amounts accrued and charged to income under each plan is included as part of accrued payroll and employee benefits at each respective year-end. The amounts charged to income are summarized below(in thousands):
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||
Profit Sharing and 401-K | $ | 414 | $ | 384 | $ | 427 | $ | 788 | $ | 414 | $ | 384 | ||||||||||||
Management Incentive | $ | 691 | $ | 544 | $ | 258 | $ | 3,722 | $ | 691 | $ | 544 | ||||||||||||
29
The Company also provides declining value life insurance to its retirees and a maximum of three years of medical coverage to qualified individuals who retire between the ages of 62 and 65. The Company does not fund these plans.
28
Components of net post retirement benefit costcosts for 2004, 2003 2002 and 2001 (in2002(in thousands):
2004 | 2003 | 2002 | |||||||||||||||||||||||
2003 | 2002 | 2001 | |||||||||||||||||||||||
Service cost | $ | 100 | $ | 74 | $ | 63 | $ | 116 | $ | 100 | $ | 74 | |||||||||||||
Interest cost | $ | 154 | $ | 149 | $ | 144 | 152 | 154 | 149 | ||||||||||||||||
Amortization of prior service cost | $ | 42 | $ | 22 | $ | 22 | 47 | 42 | 22 | ||||||||||||||||
Amortization of actuarial loss | ($ | 31 | ) | ($ | 46 | ) | ($ | 56 | ) | ||||||||||||||||
Amortization of actuarial loss (gain) | (9 | ) | (31 | ) | (46 | ) | |||||||||||||||||||
Net periodic benefit cost | $ | 265 | $ | 199 | $ | 173 | $ | 306 | $ | 265 | $ | 199 | |||||||||||||
The status of the plans at December 31, 2004, 2003 2002, and 20012002 was as follows (thousands)(in thousands):
2004 | 2003 | 2002 | ||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||
Change in projected benefit obligations: | ||||||||||||||||||||||||
Benefit obligation at beginning of year | $ | 2,367 | $ | 1,936 | $ | 1,709 | $ | 2,635 | $ | 2,367 | $ | 1,936 | ||||||||||||
Service cost | 100 | 74 | 62 | 116 | 100 | 74 | ||||||||||||||||||
Interest cost | 154 | 149 | 144 | 152 | 154 | 149 | ||||||||||||||||||
Benefit payments | (192 | ) | (101 | ) | (127 | ) | (95 | ) | (192 | ) | (101 | ) | ||||||||||||
Actuarial loss | 206 | 309 | 148 | |||||||||||||||||||||
Actuarial loss (gains) | 393 | 206 | 309 | |||||||||||||||||||||
Benefit obligation at end of year | $ | 2,635 | $ | 2,367 | $ | 1,936 | $ | 3,201 | $ | 2,635 | $ | 2,367 | ||||||||||||
Reconciliation of funded status: | ||||||||||||||||||||||||
Funded status | $ | (2,635 | ) | $ | (2,367 | ) | $ | (1,936 | ) | $ | (3,201 | ) | $ | (2,635 | ) | $ | (2,367 | ) | ||||||
Unrecognized prior service cost | 313 | 355 | 376 | 266 | 313 | 355 | ||||||||||||||||||
Unrecognized actuarial gain | (387 | ) | (624 | ) | (978 | ) | 15 | (387 | ) | (624 | ) | |||||||||||||
Accrued benefit liabilities | $ | (2,709 | ) | $ | (2,636 | ) | $ | (2,538 | ) | $ | (2,920 | ) | $ | (2,709 | ) | $ | (2,636 | ) | ||||||
Change in projected benefit obligations | $ | 566 | $ | 268 | $ | 43 | ||||||||||||||||||
Future benefit costs were estimated assuming medical costs would increase at a 5.75% annual rate for 2003.2004. A 1% increase in the health care cost trend rate assumptions would have increased the accumulated post retirement benefit obligation at December 31, 20032004 by $184,000$221,000 with no significant effect on the 20022003 post retirement benefit expense. The weighted average discount rate used in determining the accumulated post retirement benefit obligation was 5.75% in 2004, 6.00% in 2003 and 6.75% in 2002 and 7.5% in 2001.2002.
During 20022004 no contribution was made to the Supplemental Pension Plan. In 2003 the Company contributed $0.3 million to its Supplemental Pension Plan and in 2002 $11.3 million of company stock and $2.0 million of cash was contribution to the pension plans. The Company anticipates contributing $0.3 million to its Supplemental Pension Plan in 2004. Non-cash income on the pension investments, net of non-cash expenses for post-retirement benefits, ofwas $1.4 million and $2.5 million and $2.3 million was recognized in 2003 and 2002, and 2001, respectively. In 2004 the Company recorded a non cash expense of $0.4 million for these items.
(5) Joint Ventures
Effective January 1, 2004 the Company purchased the remaining joint venture partner’s interest in Castle de Mexico, S.A. de C.V. for $1.6 million. Castle de Mexico is a distribution company, which targets a wide range of businesses within the durable goods sector throughout Mexico. The results of this entity, now a wholly owned subsidiary, have been consolidated in the Company’s financial statements as of the effective date of the acquisition. On January 1, 2004 the operating assets of Laser Precision were sold to an unrelated third-party.
On March 31, 2004 Total Plastics Inc. (TPI) purchased the remaining 40% interest in its Paramont Machine Company subsidiary for $0.4 million. Paramont is a manufacturer of plastic parts and components which sells to a variety of businesses basically in the Midwest. Beginning on March 31, 2004 the results of the entity were reported as a wholly owned subsidiary (the minority interest was previously eliminated from reported results). The acquisition has been reported based on a preliminary allocation of the purchase price.
In July 2003 the Company sold its 50% interest in Energy Alloys, a joint venture which distributes tubular goods to the oil and gas field industries. The Company received $1.5 million in cash and a $2.9 million 6% 10-year promissory note. On December 31, 2003, a commitment letter was received for the sale of the Company’s interest in Laser Precision, a joint venture which produces laser cut parts and on January 1, 2004 the Company issued a letter of intent to purchase the remaining interest in Castle de Mexico, a joint venture which distributes metals.
29
On May 1, 2002 the Company purchased its joint venture partner’s remaining interest in Metal Express. Metal Express serves the small order needs of tool and die shops, universities and other research facilities as well as the maintenance, engineering and non-manufacturing needs of the Company’s traditional customer base. The results of this entity, now a wholly owned subsidiary, have been consolidated in the Company’s financial statements as of the date of the acquisition.
30
The Company has remaining interest in twoone non-controlled joint ventures, which areis accounted for on the equity basis. The following information summarizes the participation in joint ventures (in millions):
For the Years Ended December 31, | 2003 | 2002 | 2001 | 2004 | 2003 | 2002 | ||||||||||||||||||
Equity in earnings (loss) of joint ventures | $ | 0.1 | $ | 0.4 | $ | (0.6 | ) | $ | 5.2 | $ | 0.1 | $ | 0.4 | |||||||||||
Investment in joint ventures | 5.5 | 7.3 | 9.2 | 8.5 | 5.5 | 7.3 | ||||||||||||||||||
Advances to joint ventures | 1.7 | 5.5 | 3.5 | — | 1.7 | 5.5 | ||||||||||||||||||
Sales to joint ventures | 1.2 | 3.0 | 3.5 | 0.2 | 1.2 | 3.0 | ||||||||||||||||||
Purchases from joint ventures | 0.7 | 0.9 | 1.8 | 0.6 | 0.7 | 0.9 | ||||||||||||||||||
Summarized financial data for these ventures combined and a venture (sold in 2003) which met certain thresholds for separate disclosure, is as follows (in millions):
Individual Venture | Combined | Combined | ||||||||||||||||||||||||||||||
For the Years Ended December 31, | 2002 | 2001 | 2003 | 2002 | 2001 | 2004 | 2003 | 2002 | ||||||||||||||||||||||||
Revenues | $ | 33.6 | $ | 35.5 | $ | 105.0 | $ | 145.5 | $ | 161.3 | $ | 133.1 | $ | 105.0 | $ | 145.5 | ||||||||||||||||
Gross material margin | 8.3 | 8.5 | 16.1 | 27.3 | 33.3 | 26.3 | 16.1 | 27.3 | ||||||||||||||||||||||||
Pre-tax income | 1.0 | 2.0 | 0.3 | 0.7 | (0.1 | ) | 10.7 | 0.3 | 0.7 | |||||||||||||||||||||||
Current assets | 16.4 | 19.6 | 40.9 | 60.7 | 72.2 | 52.3 | 40.9 | 60.7 | ||||||||||||||||||||||||
Non-current assets | 2.3 | 2.2 | 11.7 | 15.5 | 20.0 | 8.9 | 11.7 | 15.5 | ||||||||||||||||||||||||
Current liabilities | 12.3 | 17.6 | 41.0 | 57.8 | 65.3 | 42.9 | 41.0 | 57.8 | ||||||||||||||||||||||||
Non-current liabilities | 1.5 | 0.1 | 3.4 | 4.7 | 10.4 | 2.2 | 3.4 | 4.7 | ||||||||||||||||||||||||
Partners equity | 4.9 | 4.1 | 8.2 | 13.6 | 16.5 | 16.2 | 8.2 | 13.6 | ||||||||||||||||||||||||
(6) Income taxes
Significant components of the Company’s federal and state deferred tax liabilities and assets (foreign income is insignificant) as of December 31, 2004, 2003 2002 and 20012002 are as follows(in thousands):
2004 | 2003 | 2002 | ||||||||||||||||||||||||||
2003 | 2002 | 2001 | ||||||||||||||||||||||||||
Deferred tax liabilities: | ||||||||||||||||||||||||||||
Depreciation | $ | 11,086 | $ | 12,038 | $ | 11,898 | $ | 10,141 | $ | 11,086 | $ | 12,038 | ||||||||||||||||
Inventory, net | 7,009 | 8,261 | 6,562 | 9,743 | 7,009 | 8,261 | ||||||||||||||||||||||
Pension | 15,288 | 12,222 | 8,092 | 15,472 | 15,288 | 12,222 | ||||||||||||||||||||||
Other, net | 197 | — | — | 220 | 197 | — | ||||||||||||||||||||||
Total deferred liabilities | 33,580 | 32,521 | 26,552 | 35,576 | 33,580 | 32,521 | ||||||||||||||||||||||
Deferred tax assets: | ||||||||||||||||||||||||||||
Post-retirement benefits | 1,127 | 1,054 | 1,014 | 1,197 | 1,127 | 1,054 | ||||||||||||||||||||||
NOL carryforward | 7,769 | 4,522 | 3,159 | 3,018 | 7,769 | 4,522 | ||||||||||||||||||||||
Deferred gain | 3,501 | — | — | 3,758 | 3,501 | — | ||||||||||||||||||||||
Impairment and special charges | 2,866 | — | — | 1,231 | 2,866 | — | ||||||||||||||||||||||
Other, net | — | 1,493 | 2,761 | — | — | 1,493 | ||||||||||||||||||||||
Total deferred tax assets | 15,263 | 7,069 | 6,934 | 9,204 | 15,263 | 7,069 | ||||||||||||||||||||||
Net deferred tax liabilities | $ | 18,317 | $ | 25,452 | $ | 19,618 | $ | 26,372 | $ | 18,317 | $ | 25,452 | ||||||||||||||||
3130
A reconciliation between the statutory income tax amount and the effective amounts at which taxes were actually (benefited) provided is as follows(in thousands):
2003 | 2002 | 2001 | ||||||||||||||||||||||
Federal (benefit) income tax at statutory rates | $ | (9,773 | ) | $ | (5,185 | ) | $ | (2,944 | ) | |||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||
Federal income tax (benefit) at statutory rates | $ | 10,103 | $ | (9,773 | ) | $ | (5,185 | ) | ||||||||||||||||
State income taxes, net of Federal income tax benefits | (1,216 | ) | (703 | ) | (383 | ) | 1,257 | (1,216 | ) | (703 | ) | |||||||||||||
Other | 943 | 348 | 292 | 630 | 943 | 348 | ||||||||||||||||||
Income tax benefit | $ | (10,046 | ) | $ | (5,540 | ) | $ | (3,035 | ) | |||||||||||||||
Income tax expense (benefit) | $ | 11,990 | $ | (10,046 | ) | $ | (5,540 | ) | ||||||||||||||||
InThe 2003 Federal NOL carryforward of $3.8 million was utilized in the fourth quarter of 2003 the Company revalued its deferred tax assets mainly consisting of state income net operating loss carryforward (NOL). The revaluation resulted in a net charge to income tax expense of $0.8 million.2004 financials. The Company believes that the remaining state NOL of $4.0 million and Federal NOL of $4.5$3.4 million will be recognized before their expiration dates which range from 2006 to 2023.
(7) Discontinued Operations
On May 1, 2002 the Company sold its United Kingdom subsidiary for $6.5 million consisting of $3.3 million received in cash ($2.5 million paid at closing and $0.8 million received in January 2003) and $3.2 million to settle amounts owed. The initial after-tax loss on the sale totalled $0.8 million. In December 2003, claims were received from the buyer against certain of the assets sold, which resulted in an additional after tax loss on the sale of $0.2 million.
The financial statements for all periods have been restated to present the subsidiary as a discontinued operation. The following is a summary of the discontinued operation’s financial data (in millions):
2002 | 2001 | |||||||
Net Sales | $ | 4.5 | $ | 16.7 | ||||
Pre tax (loss) income | (0.1 | ) | 0.5 | |||||
Net (loss) | — | 0.3 |
2002 | ||||
Net sales | $ | 4.5 | ||
Pre-tax loss | (0.1 | ) | ||
Net loss | — | |||
(8) Asset Impairment and Special Charges
After a review of certain of its under-performing operations within its metals segment, the Company initiated a major restructuring program during the second quarter of 2003. The restructuring anticipated the sale or liquidation of several under-performing and cash consuming business units, which are notwere strategic to the Company’s long-term strategy and were reporting operating losses and/or consuming cash. The restructuring includes the closing of KSI, LLC a chrome bar plating operation; the liquidation or sale of the Company’s 50% interest in Laser Precision, a joint venture which produces laser cut parts; the sale of the operating assets of Keystone Honing Company, a subsidiary which processes and sells honed tubes; the disposal of selected pieces of equipment which interfere with more efficient use of the Company’s distribution facilities, and the sale of the Company’s 50% interest in Energy Alloys, a joint venture which distributes tubular goods to the oil and gas field industries.
The combined impairment and special charges recorded during 2003 included $1.6 million of inventories to be sold or liquidated in connection with the disposition of certain businesses; the impairment of long-lived assets of $4.5 million based on their anticipated sale price or appraisal value; the accrual of $1.1 million of contract termination costs under operating leases associated with the sale of the businesses’ non-inventory assets, a $3.5 million impairment on the investment in the two joint ventures, and $0.8 million of other restructuring related costs.
3231
The following table summarizes the restructure reserve activity (in millions):
June 30 | Second Half | Second Half | December | |||||||||||||||||||||||||
2003 | 2003 | 2003 | 2003 | 12/31/2003 | 2004 | 12/31/2004 | ||||||||||||||||||||||
Balance | Charges | Adjustments | Balance | Balance | Charges | Balance | ||||||||||||||||||||||
Lease and other contract transition costs | $ | 0.9 | $ | (0.6 | ) | $ | 0.3 | $ | 0.3 | $ | (0.3 | ) | $ | — | ||||||||||||||
Environmental clean-up costs | 0.4 | (0.5 | ) | 0.9 | 0.8 | 0.8 | (0.8 | ) | — | |||||||||||||||||||
Legal fees on asset sales/divestiture | 0.2 | (0.2 | ) | 0.1 | 0.1 | 0.1 | (0.1 | ) | — | |||||||||||||||||||
Total | $ | 1.5 | $ | (1.3 | ) | $ | 1.0 | $ | 1.2 | $ | 1.2 | $ | (1.2 | ) | — | |||||||||||||
KSI, LLC
Although the Company has made significant investments in this business the operation has never operated profitably due to the lack of sufficient volume. New business was aggressively being sought, but due to the highly depressed activity in the markets it served, the necessary volume could not be achieved. In the second quarter of 2003, the decision was made to cease operations and begin the liquidation. As a result of this decision an impairment of $3.1 million has beenwas recorded on long-lived assets;assets in 2003; $0.6 million was accrued for contract termination costs under operating leases; $0.4 million was accrued for environmental shutdown and clean up costs of the existing building; $0.8 million of special charges were incurred to reduce inventory to anticipated liquidation value and $0.4 million was incurred for early termination of funded debt which was secured by the entity’s assets.
As of December 31, 2004 all operating assets and inventory on-site have been liquidated. Environmental remediation efforts are nearly complete and total expenses paid to date were $2.6 million. All remediation and clean-up costs are covered under existing insurance policies net of a $0.3 million deductible. In 2004, $1.8 million of insurance proceeds were received and the Company has recorded a $0.5 million receivable representing additional insurance proceeds expected. The Company has reached a tentative agreement for the sale of the building once state regulatory approval is attained on the environmental clean-up. The Company anticipates the sale to occur in 2005.
Keystone Honing Company
During the second quarter of 2003 the Company entered into negotiations to sell selected assets of this wholly owned subsidiary. The sale was completed on July 31, 2003. As a result of the sale, an impairment charge of $0.8 million was recorded on long-lived assets and goodwill and a special charge of $0.8 million was recorded to reduce inventory to its net realizable value.
Energy Alloys, a Joint Venture
Under the Company’s joint venture agreement, Energy Alloys LP, the Company had the right under the buy-sell agreement to either purchase or sell its interest for a specific dollar value. The Company exercised this provision on January 28, 2003. The two parties entered into negotiations, which resulted in an agreement under which the joint venture partner would purchase the Company’s interest for $4.4 million. On July 23, 2003 the Company received $1.5 million in cash and a $2.9 million promissory note for its interest in the joint venture. An impairment charge of $0.2 million was recorded in 2003 based on the loss on the sale primarily due to professional service fees associated with this transaction.
Laser Precision, a Joint Venture
Continued depression in the manufacturing environment and failure to achieve breakeven points or positive cash flows during the first six months of 2003 led to the decision to liquidate or sell this joint venture. On December 31, 2003 the Company received a commitment letter for the sale of the joint venture. An impairment of $3.3 million was recognized based upon the Company’s expected sales price. On January 1, 2004 the operating assets of Laser Precision were sold to an unrelated third-party.
Long-Lived Asset Impairment and Lease Termination Costs
Selected long-lived assets and non-cancelable leases were either impaired or accruals were made for contract termination costs totallingtotaling $1.1 million. TheIn 2003, the decision was made to dispose of the owned assets and cease use of the leased assets in order to facilitate plant consolidations and to maximize plant utilization.
32
(9) Accounts Receivable Securitization
In December 2002, the Company replaced an Accounts Receivable Securitization facility scheduled to expire in March 2003 with a $60 million, three-year facility. The Company is utilizing a special purpose, fully consolidated, bankruptcy remote company (Castle SPFD, LLC) for the sole purpose of buying receivables from the parent Company and selected subsidiaries, and selling an undivided interest in a base of receivables to a finance company. Castle SPFD, LLC retains an undivided interest in the pool of accounts receivable, and bad debt losses are allocated first to this retained interest. The facility,
33
which expires in December 2005, requires early amortization if the special purpose company does not maintain a required minimum equity balance or if certain ratios related to the collectibility of the receivables are not maintained. Funding under the facility is limited to the lesser of a calculated funding base or $60 million. As of December 31, 2003, $13.02004, $16.5 million of accounts receivable were sold to the finance company and an additional $20.1$27.2 million could have been sold under the agreement. The amount sold to the financing company at December 31, 2003 and 2002 was $13.0 million and $25.9 million.million, respectively.
The sale of accounts receivable is reflected as a reduction of “accounts receivable, net” in the Consolidated Balance Sheets and the proceeds received are included in “net cash provided from operating activities” in the Consolidated Statements of Cash Flows. Sales proceeds from the receivables are less than the face amount of the accounts receivable sold by an amount equal to a discount on sales as determined by the financing company. These costs are charged to “discount on sale of accounts receivable” in the Consolidated Statements of Operations. The discount rate as of December 31,200331, 2004 ranged from 3.89%5.16% to 4.00%5.25%.
(10) Debt
Long-Term Debt
Long-term debt consisted of the following at December 31, 2004, 2003 2002 and 2001 (in2002(in thousands):
2003 | 2002 | 2001 | ||||||||||||||||||||||
Revolving credit agreement | $ | 6,557 | $ | 3,434 | $ | 6,658 | ||||||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||
Revolving credit agreement (a) | $ | 7,086 | $ | 6,557 | $ | 3,434 | ||||||||||||||||||
8.49% (6.49% prior to November 2002) insurance company term loan, due in equal installments from 2004 through 2008 | 20,000 | 20,000 | 20,000 | 16,000 | 20,000 | 20,000 | ||||||||||||||||||
Industrial development revenue bonds at a 6.22% weighted average rate, due in varying amounts through 2009 | 4,891 | 11,558 | 13,825 | |||||||||||||||||||||
Industrial development revenue bonds at a 6.22% weighted average rate, due in 2009 | 3,600 | 4,891 | 11,558 | |||||||||||||||||||||
9.54% (7.54% prior to November 2002) insurance company loan due in equal installments from 2005 through 2009 | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | 25,000 | ||||||||||||||||||
8.55% (6.54% prior to November 2002) average rate insurance company loan due in varying installments through 2012 | 49,375 | 51,250 | 53,125 | |||||||||||||||||||||
8.55% (6.54% prior to November 2002) average rate insurance company loan due in varying installments from 2001 through 2012 | 47,500 | 49,375 | 51,250 | |||||||||||||||||||||
Other | 2,459 | 1,105 | 1,103 | 2,192 | 2,459 | 1,105 | ||||||||||||||||||
Total | 108,282 | 112,347 | 119,711 | 101,378 | 108,282 | 112,347 | ||||||||||||||||||
Less-current portion | (8,248 | ) | (3,546 | ) | (2,664 | ) | (11,607 | ) | (8,248 | ) | (3,546 | ) | ||||||||||||
Total long-term portion | $ | 100,034 | $ | 108,801 | $ | 117,047 | $ | 89,771 | $ | 100,034 | $ | 108,801 | ||||||||||||
Long-Term Debt
(a) The Company has a revolving credit agreement with a Canadian bank. Funding under the facility is limited to the lesser of a funding base or $6.9$8.3 million. At December 31, 20032004 an additional $0.4$1.2 million could have been borrowed under the agreement. The existing Canadian credit facility is a five-year revolver and can be extended annually for an additional year, by mutual agreement. Under this credit arrangement all borrowings are considered to be long-term debt for balance sheet presentation purposes. A domestic facility was replaced by an accounts receivable securitization agreement during the thirdfourth quarter of 2001.2002.
33
Interest rate options for the foreign revolving facility are based on the Bank’s London Interbank Offer Rate (LIBOR) or Prime rates. The weighted average rate was 3.1%2.4%, 3.1% and 3.5% in 2004, 2003, and 5.4% in 2003, 2002 and 2001 respectively. A commitment fee of 0.5% of the unused portion of the commitment is also required.
(b) The industrial revenue bonds arebond is based on a variable rate demand bond structure and areis backed by a letter of credit.
(c) In November 2002 the Company reached an agreement with its lenders to amend its loan covenants. The amendments expandexpanded certain critical financial covenants in order to provide greater
34
financial and operating flexibility in exchange for a 200 basis point increase in interest rates. As part of the amendments, the Company granted its lenders security interests in the Company’s and its subsidiaries’ assets, and the subsidiaries were added as guarantors. The interest rate increase can be reduced by 150 basis points and the security interests released when the Company’s balance sheet reaches an investment grade credit rating as defined in the loan agreements.
The most restrictive provisions of the agreements require the Company to maintain certain funded debt-to-total capitalization ratios, working capital ratios and minimum equity balances. The Company was in compliance with all covenants at December 31, 2003.2004.
Net interest expense reported on the accompanying Consolidated Statements of Operations was reduced by interest income of $0.2 million in 2004 and $0.1 million in 2003 2002 and 2001.2002.
Aggregate annual principal payments required on long-term debt are as follows(in thousands):
Year ending December 31, | ||||
2004 | $ | 8,248 | ||
2005 | 11,371 | |||
2006 | 16,189 | |||
2007 | 16,208 | |||
2008 | 19,109 | |||
Later years | 37,157 | |||
Total debt | $ | 108,282 | ||
Year ending December 31, | ||||
2005 | $ | 11,607 | ||
2006 | 16,390 | |||
2007 | 16,390 | |||
2008 | 19,304 | |||
2009 | 16,600 | |||
Later years | 21,087 | |||
Total debt | $ | 101,378 | ||
Short-Term Debt
Short-termIn 2002, the Company had short-term borrowing activityof $0.7 million on average. The maximum short-term borrowing that year was as follows($1.2 million and the average interest rate was 3.9%. The Company had no short-term borrowing in thousands)
2003 | 2002 | 2001 | ||||||||||
Maximum borrowed | — | $ | 1,237 | $ | 12,225 | |||||||
Average borrowed | — | 709 | 2,713 | |||||||||
Average interest rate during the year | — | 3.9 | % | 5.9 | % | |||||||
Amounts outstanding at year-end | — | — | — | |||||||||
(11) Common Stock/Stock Options
During 2000, a letteredrestricted stock award of 100,000 shares with a value of $1.2 million was granted. The award vests in various amounts over a three-year period. In 2002, letteredrestricted stock awards of 16,000 shares with a value of $0.2 million were granted. The awards vest equally over three years. An expense of $0.1 million, $0.1 million and $0.3 million and $0.4 million werewas recorded for 2004, 2003 2002 and 20012002, respectively, in order to recognize the compensation ratably over the vesting period.
The Company has long-term stock incentive and stock option plans for the benefit of officers, directors, and key management employees. The 1995 Directors Stock Option Plan authorizes up to 187,500 shares; the 1996 Restricted Stock and Stock Option Plan authorizes 937,500 shares; and the 2000 Restricted Stock and Stock Option Plan authorizes 1,200,000 shares and the 2004 Restricted Stock, Stock Option and Equity Compensation Plan authorizes 1,350,000 shares for use under these plans. A summary of the activity under the plans is shown below:
3534
Wtd. Avg | |||||||||||||
Exercise | Price | ||||||||||||
Shares | Price | Range | |||||||||||
December 31, 2000 | 1,330,641 | $ | 15.03 | $ | 10.00-$23.88 | ||||||||
Granted | 433,376 | $ | 11.23 | $ | 9.87-$13.00 | ||||||||
Forfeitures | (138,932 | ) | $ | 14.12 | $ | 10.00-$21.88 | |||||||
December 31, 2001 | 1,625,085 | $ | 14.09 | $ | 10.00-$23.88 | ||||||||
Granted | 657,230 | $ | 6.83 | $ | 6.39-$10.74 | ||||||||
Forfeitures/Tendered | (395,612 | ) | $ | 18.18 | $ | 10.00-$23.88 | |||||||
December 31, 2002 | 1,886,703 | $ | 10.71 | $ | 6.39-$23.88 | ||||||||
Granted | 397,500 | $ | 5.20 | $ | 4.79-$5.21 | ||||||||
Forfeitures | (208,250 | ) | $ | 9.94 | $ | 6.39-$20.25 | |||||||
December 31, 2003 | 2,075,953 | $ | 9.73 | $ | 4.79-$23.88 | ||||||||
.Avg. | ||||||||||||
Exercise | ||||||||||||
Shares | Price | Price Range | ||||||||||
December 31, 2001 | 1,625,085 | $ | 14.09 | $ | 10.00 | — $23.88 | ||||||
Granted | 657,230 | 6.83 | 6.39 | — 10.74 | ||||||||
Forfeitures/Tendered | (395,612 | ) | 18.18 | 10.00 | — 23.88 | |||||||
December 31, 2002 | 1,886,703 | 10.71 | 6.39 | — 23.88 | ||||||||
Granted | 397,500 | 5.20 | 4.79 | — 5.21 | ||||||||
Forfeitures/Tendered. | (208,250 | ) | 9.94 | 6.39 | — 20.25 | |||||||
December 31, 2003 | 2,075,953 | 9.73 | 4.79 | — 23.88 | ||||||||
Granted | 52,500 | 8.52 | 8.52 | |||||||||
Forfeitures | (244,767 | ) | 14.43 | 5.21 | — 23.12 | |||||||
December 31, 2004 | 1,883,686 | $ | 9.10 | $ | 4.79 | — $28.25 | ||||||
During 2002 the Company offered its current option holders a plan in which existing options could be tendered for new options for one-half the number of the original shares granted at an option price which would be determined by the Company’s stock price more than six months after the tender date. The tendered shares are included in “Forfeitures/Tendered” and the new grants are included as “Granted”.
As of December 31, 2003, 1,173,1002004, 1,409,049 of the 2,075,9531,883,686 options outstanding were exercisable and had a weighted average contractual life of 6.66.2 years with a weighted average exercise price of $12.07.$10.13. The remaining 902,853474,637 shares were not exercisable and had a weighted average contractual life of 9.0 years, with a weighted average exercise price of $6.69.$5.72.
As required, the Company has adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”, for the periods ended December 31, 2004, 2003 2002 and 2001.2002. The following table summaries on a pro-forma basis the effects on the Company’s net loss had compensation been recognized. The fair value of the options granted has been estimated using the Black Scholes option-pricing model.
Assumptions
2003 | 2002 | 2001 | ||||||||||
Risk free interest rate | 3.1 | % | 4.0 | % | 4.5 | % | ||||||
Expected dividend yield | $ | — | $ | — | $ | — | ||||||
Option Life | 10 years | 10 years | 10 years | |||||||||
Expected volatility | 50 | % | 30.0 | % | 30.0 | % | ||||||
The estimated weighted average fair value on the date of grant based on the above assumptions | $ | 5.46 | $ | 1.66 | $ | 3.33 |
2004 | 2003 | 2002 | ||||||||||
Risk free interest | 4.32 | % | 3.1 | % | 4.0 | % | ||||||
Expected dividend yield | $ | — | $ | — | $ | — | ||||||
Option life | 10 Yrs | 10 Yrs | 10 Yrs | |||||||||
Expected volatility | 50 | % | 50 | % | 30 | % | ||||||
The estimated weighted average fair value on the date granted based on the above assumptions | $ | 8.52 | $ | 5.46 | $ | 1.66 | ||||||
Pro-Forma Loss Information(Income (Loss) Information (in thousands except for share data):
2003 | 2002 | 2001 | ||||||||||
Net loss apllicable to common stock, as reported | $ | (19,010 | ) | $ | (10,154 | ) | $ | (5,050 | ) | |||
Pro-forma effect of stock option compensation under fair value based method for all awards | (658 | ) | (966 | ) | (695 | ) | ||||||
Pro-forma net loss applicable to common stock | $ | (19,668 | ) | $ | (11,120 | ) | $ | (5,745 | ) | |||
Total basic and diluted loss per share, as reported | $ | (1.20 | ) | $ | (0.68 | ) | $ | (0.36 | ) | |||
Pro-forma basic and diluted loss per share | $ | (1.25 | ) | $ | (0.74 | ) | $ | (0.39 | ) | |||
2004 | 2003 | 2002 | ||||||||||
Net income (loss) applicable to common stock, as reported | $ | 15,920 | $ | (19,010 | ) | $ | (10,154 | ) | ||||
Pro-forma effect of stock option compensation under fair value based method for all awards | (977 | ) | (658 | ) | (966 | ) | ||||||
Pro-forma net income (loss) applicable to common stock | $ | 14,943 | $ | (19,668 | ) | $ | (11,120 | ) | ||||
Total basic income (loss) per share, as reported | $ | 1.01 | $ | (1.20 | ) | $ | (0.68 | ) | ||||
Total diluted income (loss) per share, as reported | $ | 1.01 | $ | (1.20 | ) | $ | (0.68 | ) | ||||
Pro-forma basic income (loss) per share | $ | 0.95 | $ | (1.25 | ) | $ | (0.74 | ) | ||||
Pro-forma diluted income (loss) per share | $ | 0.95 | $ | (1.25 | ) | $ | (0.74 | ) | ||||
35
(12) Preferred Stock
In November 2002 the Company’s largest stockholder purchased through a private placement $12.0 million of eight-percent cumulative convertible preferred stock. The initial conversion price of the preferred stock is $6.69 per share. At the time of the purchase, the shareholder, on an as-converted basis, would increase its holdings and voting power in the companyCompany by approximately 5%. The terms of the preferred stock include: the participation in any dividends on the common stock, subject to a minimum eight-percent dividend; voting rights on an as-converted basis; and customary anti-dilution
36
and preemptive rights. During 2002, legal and consulting fees incurred in preparing the preferred stock arrangements of approximately $0.8 million were recorded against Stockholders Equity.
(13) Commitments and Contingent Liabilities
At December 31, 20032004 the Company had outstanding guarantees of $5.0 million for bank loans made to one of its unconsolidated affiliates. Also outstanding were $1.8 million of irrevocable letters of credit outstanding and $0.7 million of cash on deposit to comply with the insurance reserve requirements of its workers’ compensation insurance carrier. The Letter of Credit is secured with a Certificate of Deposit, which is included in “Advances to joint ventures and other current assets” on the Consolidated Balance Sheets in both 20022004 and 2003. In addition in “Accrued liabilities” on the Consolidated Balance Sheets the reserve for workers compensation was $1.4 million and $0.9 million at year-end 2004 and 2003, respectively.
The Company is the defendant in several lawsuits arising out of the conduct of its business. These lawsuits are incidental and occur in the normal course of the Company’s business affairs. It is the opinion of the Company’s in-house counsel that no significant uninsured liability will result from the outcome of the litigation, and thus there is no material financial exposure to the Company.
(14) Selected Quarterly Data (Unaudited)
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
2004 quarters | ||||||||||||||||
Net sales | $ | 175,634 | $ | 188,221 | $ | 199,341 | $ | 197,803 | ||||||||
Gross material margin | 51,153 | 56,356 | 57,308 | 52,754 | ||||||||||||
Net income | 2,062 | 5,758 | 5,847 | 2,249 | ||||||||||||
Net income per share basic | $ | 0.13 | $ | 0.36 | $ | 0.37 | $ | 0.14 | ||||||||
Net income per share diluted | $ | 0.13 | $ | 0.35 | $ | 0.35 | $ | 0.15 | ||||||||
2003 quarters | ||||||||||||||||
Net sales | $ | 141,646 | $ | 133,947 | $ | 134,917 | $ | 132,520 | ||||||||
Gross material margin | 43,202 | 38,884 | 38,969 | 35,893 | ||||||||||||
Net loss | (1,645 | ) | (9,271 | ) | (2,579 | ) | (5,516 | ) | ||||||||
Net loss per share basic and diluted | $ | (0.10 | ) | $ | (0.59 | ) | $ | (0.16 | ) | $ | (0.35 | ) | ||||
+Third Quarter 2004 includes charges to cost of sales of a net inventory adjustment of $1.7 million. The unaudited quarterly resultscomparable charge in the fourth quarter was $2.2 million as well as a net LIFO charge of operations for 2003 and 2002 are as follows (dollars in thousands,except per share data):
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
2003 quarters | ||||||||||||||||
Net sales | $ | 141,646 | $ | 133,947 | $ | 134,917 | $ | 132,520 | ||||||||
Gross material margin | 43,202 | 38,884 | 38,969 | 35,893 | ||||||||||||
Net loss | (1,645 | ) | (9,271 | ) | (2,579 | ) | (5,516 | ) | ||||||||
Net loss per share basic and diluted | $ | (0.10 | ) | $ | (0.59 | ) | $ | (0.16 | ) | $ | (0.35 | ) | ||||
2002 quarters | ||||||||||||||||
Net sales | $ | 136,036 | $ | 141,214 | $ | 136,604 | $ | 124,289 | ||||||||
Gross material margin | 41,292 | 42,080 | 40,012 | 36,762 | ||||||||||||
Net loss | (152 | ) | (2,044 | ) | (2,690 | ) | (5,268 | ) | ||||||||
Net loss per share basic and diluted | $ | (0.01 | ) | $ | (0.14 | ) | $ | (0.18 | ) | $ | (0.34 | ) |
+Fourth quarter 2003 includes charges to cost of sales of a net inventory adjustment of $2.1 million along with $0.8 million of impairment and special charges, for a total expense adjustment of $2.9 million. Also in the fourth quarter there was a $0.8 million charge to income tax expense as the result of the revaluation of state income tax NOL. The comparable charges in 2002 were a net inventory adjustment of $1.3 million, initial fees on a new accounts receivable securitization facility of $2.2 million, offset by a gain on the sale of some land of $0.6 million for a net expense adjustment of $2.9 million.
3736
Report of Independent AuditorsRegistered Public Accounting Firm
To the Stockholders and Board of Directors
of A. M. Castle & Co.:
To the Stockholders and Board of Directors of A.M. Castle & Co.:
We have audited the accompanying consolidated balance sheets of A. M.A.M. Castle & Co. (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2004, 2003, 2002 and 2001,2002, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the Index asin Item 16. These consolidated financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with auditingthe standards generally accepted inof the United States of America.Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of A. M.A.M. Castle & Co. and subsidiaries as of December 31, 2004, 2003, 2002 and 2001,2002, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill and intangible assets upon adoption of Statement of Financial Accounting Standards (SFAS) No. 142, “GoodwillGoodwill and Other Intangible Assets”Assets.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 12, 2004
ITEM 9 —Disagreements on Accounting and Financial Disclosure37
None.
38
Management’s Report on Internal Control Over Financial Reporting
Castle’s management is responsible for establishing and monitoring adequate internal control over financial reporting as such term is defined in the 1934 Securities Exchange Act rules §240.13a-15(f). Castle’s internal control is designed to provide reasonable assurance to Castle’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.
Castle, under the direction of Castle’s Chief Executive Officer and Chief Financial Officer conducted evaluation and testing of the effectiveness of Castle’s internal control over financial reporting as of December 31, 2004 based upon the framework published by the Committee of Sponsoring Organizations of the Treadway Commission, referred to as the Internal Control Integrated Framework.
All internal control over financial reporting, no matter how well designed, have inherent limitations. Therefore, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation.
Because of the material weaknesses described below management believes that, as of December 31, 2004, the Company’s internal control over financial reporting was not effective based on those criteria.
In conducting its evaluation of the Company’s internal control over financial reporting at December 31, 2004, management found a material weakness in the area of inventory controls.
In the 3rd quarter of 2004 the Company replaced its historical procedures of inventory verification with improved procedures for physical inventory counts. This change in internal control over inventory was reported in the 3rd quarter 10Q for the period ended September 30, 2004. As a result of the institution of the improved procedures in the second half of 2004, material inventory adjustments were identified and recorded during the 3rd and 4th quarters of 2004.
In addition, at year-end a weakness involving inventory stored at third party processors was identified. The post year-end implementation of expanded procedures identified additional inventory adjustments that were also recorded.
The impact of these inventory adjustments reduced after tax earnings by $1.0 million in the 3rd quarter and $2.4 million in the 4th quarter of 2004.
In addition, management determined that significant deficiencies in the financial close and reporting process existed. As a result of applying more rigorous post year-end procedures, material errors in the Company’s financial statements were recorded. In management’s opinion, these significant deficiencies, in the aggregate, also constituted a material weakness as that term is defined in Section 404 of the Sarbanes-Oxley Act.
Castle’s independent auditors, Deloitte & Touche LLP, the registered public accounting firm that audited the Financial Statements included in the Annual Report (this 10K), have issued an attestation report on management’s assessment of the effectiveness of Castle’s internal controls over financial reporting as of December 31, 2004. This report appears on page 39.
38
Independent Registered Public Accounting Firm
Report on Internal Control Over Financial Reporting
To the Stockholders and Board of Directors of A.M. Castle & Co.:
We have audited management’s assessment, included in the accompanying management’s report on internal control over financial reporting, that A.M. Castle & Co. and subsidiaries (the “Company”) did not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of the material weaknesses identified in management’s assessment based on criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment. The Company failed to design and implement appropriate controls and procedures over the accounting for inventory and the period-end financial closing and reporting process to ensure that financial information is adequately analyzed to detect actual misstatements. Specifically:
• | As of December 31, 2004, management had not implemented the procedures and review processes required in order to complete accurate and timely reconciliations of its inventory counts to the general ledger. Also, as of December 31, 2004, the Company did not have processes to verify and reconcile its inventory held at outside processors to the general ledger. As a result, the Company recorded material adjustments in 2004 to reduce its inventory balances and increase cost of goods sold. The deficiency was concluded to be a material weakness due to the |
39
significance of the adjustments, the significance of controls over inventory to the preparation of reliable financial statements, and the absence of other mitigating controls to detect the adjustments. | ||||
• | Management did not adequately analyze and review certain financial statement accounts in the period-end financial closing and reporting process and, as a result, adjustments that were not individually material to the financial statements were required at December 31, 2004, to (1) increase the allowance for doubtful accounts, (2) reduce the accrual for insurance reserves, and (3) increase the provision for income taxes. Due to the misstatements identified, the potential for further misstatements as a result of the internal control deficiencies, and the significance of the financial closing and reporting process to the preparation of reliable financial statements, there is a more than remote likelihood that a material misstatement of the interim and annual financial statements would not have been prevented or detected. |
These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2004, of the Company and this report does not affect our report on such financial statements and financial statement schedule.
In our opinion, management’s assessment that the Company did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2004, based on the criteria established inInternal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2004, of the Company and our report dated March 15, 2005 expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph related to a change in accounting for goodwill and intangible assets upon adoption of Statement of Financial Accounting Standards, No. 142,Goodwill and Other Intangible Assets.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
March 15, 2005
40
ITEM 9 —Changes In and Disagreements With Accountants on Accounting and Financial Disclosure |
PART III None.
ITEM 9A — Controls & Procedures
Disclosure Controls and Procedures
A review and evaluation was performed by the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Security Exchange Act of 1934). Based upon that review and evaluation, the CEO and CFO have concluded that due to material weaknesses discussed in Management’s Report on Internal Controls Over Financial Reporting on page 38 hereof, the Company’s disclosure controls and procedures were not effective as of December 31, 2004.
Management’s Annual Report on Internal Controls Over Financial Reporting
Management’s report on internal controls over financial reporting is included in Part II of this report and incorporated in this Item 9A by reference.
Attestation Report of the Independent Registered Public Accounting Firm
Deloitte & Touche LLP has audited management’s assessment of the effectiveness of internal controls over financial reporting as stated in their report included in Part II Item 8 and incorporated by reference herein.
Change in Internal Controls Over Financial Reporting
During the third quarter 2004, the Company made changes to its internal controls over financial reporting relating to inventory. These changes were reported in the third quarter 10-Q. During the fourth quarter 2004, the Company continued to implement these changes to the balance of the Company’s inventory.
As a result of the material weaknesses identified, management has instituted more rigorous procedures for physical counts and reconciliations of inventory to be performed once or twice per year depending upon location size and risk assessment. Also, in the first quarter of 2005, the Company will require detailed certification by outside processors of its inventory received, shipped and on-hand as of the close of each quarter, which will be reconciled to the financial statements.
In addition, expanded procedures relating to the analysis of workmen compensation reserves, customer credit memo reserves, and accounts payable debit memo reserves have been put in place. Specifically, the expanded procedures will be based upon the same detailed analysis the Company performed on these reserves at year end that led to the identification of material adjustments to the financial statements.
Item 9B — Other Information
None
41
PART III
ITEM 10 -—Directors and Executive Officers of the Registrant
Executive Officers of The Registrant
Name and Title | Age | Business Experience | ||||
G. Thomas McKane Chairman and Chief Executive Officer | Mr. McKane began his employment with the registrant in May of | |||||
Stephen V. Hooks Executive Vice President — Chief Operating Castle Metals | Mr. Hooks began his employment with the registrant in 1972. He was elected to the position of Vice President | |||||
Albert J. Biemer, III Vice President — Supply Chain | Mr. Biemer began his employment with the registrant in 2001 and was elected Vice President – Supply Chain. Formerly with CSC, Ltd. as Vice President, Logistics in 2000 and Carpenter Technology Corporation 1997 to 2000. | |||||
Vice President Treasurer | Mr. Boik began his employment with the registrant in | |||||
Vice President and | Mr. | |||||
M. Bruce Herron Vice President | Mr. Herron began his employment with the registrant in 1970. He was elected to the position of Vice President | |||||
Robert R. Hudson Vice President Tubular & Plate Products | Mr. Hudson began his employment with the | |||||
Tim N. Lafontaine Vice President — Alloy Products | Mr. Lafontaine began his employment with the registrant in 1975, and was elected Vice President - Alloy Products in |
3942
Name and Title | Age | Business Experience | ||||
Blain A. Tiffany Vice President and Eastern Region Manager | 46 | Mr. Tiffany began his employment with the registrant in 2000 and was appointed to the position of District Manager. He was appointed Eastern Region Manager in 2003 and Vice President in 2005. Prior to joining he was with Alro Steel. | ||||
Craig R. Wilson Vice President — Advanced Material Products | Mr. Wilson began his employment with the registrant in 1979. He was elected to the position of Vice President - Eastern Region in 1997; Vice President | |||||
Paul J. Winsauer Vice President - Human Resources | 53 | Mr. Winsauer began his employment with the registrant in 1981. In 1996, he was elected to the position of Vice- President — Human Resources. | ||||
Jerry M. Aufox Secretary and Corporate Counsel | Mr. Aufox began his employment with the registrant in 1977. In 1985 he was elected to the position of Secretary and Corporate Counsel. He is responsible for all legal affairs of the registrant. | |||||
Thomas L. Garrett President Total Plastics, Inc. | 42 | Mr. Garrett began his with the registrant in 1988 and was appointed to the position of controller. He was elected to the position of Vice President in 1996 and President in 2001. | ||||
Paul A. Lisius Vice President and General Manager Metal Express, LLC | 56 | Mr. Lisius began his employment with the registrant in 2001 and was appointed to the position of controller. He 2004 in was elected to the position of Vice President and General Manager. Prior to joining Metal Express he was the controller of Hentzen Coatings |
All additional information required to be filed in Part III, Item 10, Form 10-K, has been included in the Definitive Proxy Statement dated March 15, 20042005 filed with the Securities and Exchange Commission, pursuant to Regulation 14A entitled “Information Concerning Nominees for Directors” and is hereby incorporated by this specific reference.
ITEM 11 —Executive Compensation
All information required to be filed in Part III, Item 11, Form 10-K, has been included in the Definitive Proxy Statement dated March 15, 2004,2005, filed with the Securities and Exchange Commission, pursuant to Regulation 14A entitled “Management Remuneration” and is hereby incorporated by this specific reference.
ITEM 12 —Security Ownership of Certain Beneficial Owners and Management
The information required to be filed in Part I, Item 4, Form 10-K, has been included in the Definitive Proxy Statement dated March 15, 2004,2005, filed with the Securities and Exchange Commission pursuant to Regulation 14A, entitled “Information Concerning Nominees for Directors” and “Stock Ownership of Certain Beneficial Owners and Management” is hereby incorporated by this specific reference.
Other than the information provided above, Part III has been omitted pursuant to General Instruction G for Form 10-K and Rule 12b-23 since the Company will file a Definitive Proxy Statement not later than 120 days after the end of the fiscal year covered by this Form 10-K pursuant to Regulation 14A, which involves the election of Directors.
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ITEM 13 —Certain Relationships and Related Transactions
None.
ITEM 14 —Controls and Procedures
A review and evaluation was performed by the Company’s management, including the Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13s-14 under the securities Exchange Act of 1934) as of a date within 90 days prior to the filing of this annual report. Based on that review and evaluation, the CEO and CFO have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, were effective to ensure that information the Company is required to disclose in this annual report is recorded, processed, summarized and reported in the time period required by the rules of the Securities and Exchange Commission. There have been no significant changes
40
in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no material weaknesses identified in the course of such review and evaluation and, therefore, no corrective measures were taken by the Company.
ITEM 15 —Principal Accountant Fees and Services
All information required to be filed in Part III, Item 15,14, Form 10-K, has been included in the Definitive Proxy Statement dated March 15, 2004,2005, filed with the Securities and Exchange Commission, pursuant to Regulation 14A entitled “Proposal Three: Ratification of Appointment of Independent Auditors” and is hereby incorporated by this specific reference.
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PART IV
ITEM 1615 —Exhibits and Financial Statement Schedules and Reports on Form 8-K
The Company has filed Form 8K’s relating to earnings releases and FD Disclosures on May 6, 2003, August 5, 2003 and November 4, 2003. Referenced as Exhibits 99.1, 99.2 and 99.3 respectively
A. M. Castle & Co.
Page | ||||
Consolidated Statements of Operations | 18 | |||
Consolidated Balance Sheets | 19 | |||
Consolidated Statements of Cash Flows | 20-21 | |||
Consolidated Statements of Stockholders’ Equity – For the years ended December 31, 2004, 2003 | 21 | |||
Notes to Consolidated Financial Statements | ||||
Report of Independent Public Auditors | ||||
38 | |||||
39 | |||||
47 |
The following exhibits are filed herewith or incorporated by reference.
Exhibit | ||
Number | Description of Exhibit | |
2.2 | Agreement of Merger and Plan of Reorganization (1) | |
3.1 | Articles of Incorporation of the Company (1) | |
3.2 | Articles of Merger Between A. M. Castle & Co. (a Delaware Corporation) and Castle Merger, Inc. (a Maryland Corporation) Dated June 5, 2001 | |
3.3 | By-Laws of the Company (1) |
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Exhibit | ||
Number | Description of Exhibit | |
3.4 | Articles Supplementary to the Company’s Articles of Incorporation creating the Company’s Series A Cumulative Convertible Preferred Stock, filed November 22, 2002 with the State Department of Assessments and Taxation of Maryland (2) | |
4.1 | Note Agreement dated as of April 1, 1996 between the Company and Nationwide Life Insurance Company (2) | |
4.2 | First Amendment and Waiver to Note Agreement dated as of December 1, 1998, to April 1, 1996 Note Agreement (2) | |
4.3 | Second Amendment dated as of November 22, 2002, to April 1, 1996 Note Agreement (2) | |
4.4 | Note Agreement dated as of May 15, 1997 among the Company, Massachusetts Mutual Life Insurance Company and United of Omaha Life Insurance Company (2) | |
4.5 | First Amendment and Waiver to Note Agreement dated as of December 1, 1998, to May 15, 1997 Note Agreement (2) | |
4.6 | Second Amendment dated as of November 22, 2002, to Note Agreement dated as of May 15, 1997 (2) | |
4.7 | Note Agreement dated as of March 1, 1998 among the Company, Allstate Life Insurance Company, The Northwestern Mutual Life Insurance Company, Massachusetts Mutual Life Insurance Company, Mutual of Omaha Insurance Company and United of Omaha Life Insurance Company (2) | |
4.8 | First Amendment and Waiver to Note Agreement dated as of December 1, 1998, to Note Agreement dated as of March 1, 1998 (2) | |
4.9 | Second Amendment dated as of November 22, 2002, to Note Agreement dated as of March 1, 1998 (2) | |
4.10 | Collateral Agency and Intercreditor Agreement, dated as of March 20, 2003, among U.S. Bank National Association, BofA, Nationwide, Allstate, Northwestern Mutual, Massachusetts Mutual, Mutual of Omaha, United of Omaha, Northern, Castle, Datamet, Inc., Keystone Tube, TPI, Paramont Machine Company, LLC, Advanced Fabricating Technology, LLC, Oliver Steel, Metal Mart, LLC | |
4.11 | Intercreditor Agreement, dated as of March 20, 2003, among U.S. Bank, Castle SPFD, Castle, TPI, Oliver Steel, Keystone Tube, Massachusetts Mutual, Allstate, Nationwide, Northwestern Mutual, United of Omaha, Mutual of Omaha, BofA, Northern Trust, Castle IND MGR, and GECC | |
10.1 | Registration Rights Agreement, dated as of November 22, 2002 among the Company, the investors named therein (the “Investors”) and W.B. & Co, for itself, and as nominee and agent of the Investors relating to the Company’s Series A Cumulative Convertible Preferred Stock (2) | |
10.2 | A.M. Castle & Co. 2000 Restricted Stock and Stock Option Plan* (1) | |
10.3 | A.M. Castle & Co. 2004 Restricted Stock, Stock Option and Equity Compensation Plan* (3) | |
10.4 | Receivables Sale and Contribution Agreement, dated as of December 26, 2002, among Castle, Total Plastics, Inc., Oliver Steel Plate Co., Keystone Tube Company, LLC and Castle SPFD, LLC |
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Exhibit | ||||
Number | Description of Exhibit | |||
10.5 | Receivables Purchase and Servicing Agreement, dated as of December 26, 2002, among Castle SPFD, Castle, TPI, Oliver Steel, Castle IND MGR, Inc., and General Electric Capital Corporation | |||
10.8 | Employment Agreement with Company’s CEO dated May 1, 2000 | |||
10.9 | Change of Control Agreement with Senior Executives of the Company | |||
10.10 | Management Incentive Plan* | |||
10.11 | Description of Director’s Deferred Compensation Plan* | |||
14.1 | Code of | |||
21.1 | Subsidiaries of Registrant | |||
23.1 | Consent of Independent Auditors | |||
31.1 | Certification by G. Thomas McKane, Chairman and Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 | |||
31.2 | Certification by Lawrence A. Boik, Vice President and Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 | |||
32.1 | Certification | |||
32.2 | Certification | |||
* | These agreements are considered a compensatory plan or arrangement required to be filed pursuant to Item 14 of Form 10-K. | |||
(2) | ||||
(3) | ||||
Exhibits listed above are incorporated by reference in accordance with Rule 12b-32 (17 CFR 240.12b-32) as the material has been previously filed as part of registrants form 10-K filing for the fiscal year ended December 31, 2002 and as exhibits to the registrants definitive proxy statement dated March 15, 2004 filed with the Securities Exchange Commission pursuant to Regulation 14A.46
All schedules and exhibits, other than those listed above are omitted as the information is not required or is furnished elsewhere in the financial statements or the notes thereto.
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SCHEDULE II
A. M. Castle & Co.
Accounts Receivable -— Allowance for Doubtful Accounts
Valuation and Qualifying Accounts
For The Years Ended December 31, 2004, 2003 2002 and 20012002
(Dollars in thousands)
2003 | 2002 | 2001 | |||||||||||
Balance, beginning of year | $ | 693 | $ | 646 | $ | 590 | |||||||
Add-Provision charged to income | 400 | 1,018 | 600 | ||||||||||
-Recoveries | 82 | 104 | 327 | ||||||||||
Less-Uncollectible accounts charged against allowance | (649 | ) | (1,075 | ) | (871 | ) | |||||||
Balance, end of year | $ | 526 | $ | 693 | $ | 646 | |||||||
2004 | 2003 | 2002 | ||||||||||
Balance, beginning of year | $ | 526 | $ | 693 | $ | 646 | ||||||
Add — Provision charged to income | 1,987 | 400 | 1,018 | |||||||||
— Recoveries | 86 | 82 | 104 | |||||||||
Less — Uncollectible accounts charged against allowance | (839 | ) | (649 | ) | (1,075 | ) | ||||||
Balance, end of year | $ | 1,760 | $ | 526 | $ | 693 | ||||||
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
A. M. Castle & Co. (Registrant)
A. M. Castle & Co. | ||
(Registrant) |
By: | /s/ Lawrence A. Boik | |||
Lawrence A. Boik, Vice | ||||
Date: March 12, 200415, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities as shown following their name on the dates indicated on this 1211th day of March, 2004.
/s/ Michael Simpson | /s/ John McCartney | /s/ John W. Puth | ||
Michael Simpson, | John McCartney, Director | John W. Puth, Director | ||
Chairman Emeritus | Chairman, Audit Committee | Member, Audit Committee | ||
/s/ G. Thomas McKane | /s/ William K. Hall | /s/ Patrick J. Herbert, III | ||
G. Thomas McKane, Chairman – | William K. Hall, Director | Patrick J. Herbert, III | ||
Chief Executive Officer, and Director | Member, Audit Committee | Director | ||
(Principal Executive Officer) | ||||
/s/ | /s/ Robert S. Hamada | |||
John W. McCarter, Jr. | Robert S. Hamada | |||
Director | Director | |||
/s/ Lawrence A. Boik. | ||||
Lawrence A. Boik | ||||
Vice President and Chief Financial Officer | ||||
(Principal Financial and Accounting Officer) |
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